Super Micro Computer, Inc. Aktie

[Audio Gap] We've got Michael Staiger, who is the Senior Vice President of Corporate Development. Michael, thank you so much for taking the time today.

Thanks for having us.

We also have...

Good to see you. We also have Krishna Shankar, who is the VP of Finance; and we have Ian Tolle, who's the Head of IR in the audience. So thanks, guys. Thanks for coming today.

I've got lots of questions. I want to start with a question focused on customers. So Michael, when I think about Super Micro, you guys have done phenomenally well with the Tier 2 CSPs and large data center customers. As you look out to expand the business over the next couple of years, how do you see that customer set expanding? Where do you see expansion? And I guess a question that I get from clients is, if you're doing so well with this customer set, what are the pluses and minuses of trying to get a different customer set? Why even go for that?

Yes. That's a nice introduction. I wouldn't have to say that if you would just step back and look at the foundation of the organization and the company and where we came from, it was all enterprise customers. And if we're just talking about the customer conversation, which is important, what is an enterprise is -- are NeoClouds enterprises, et cetera. We grew up in the X86 world, where we delivered more power and more compute per footprint for customers back in the day when those elements weren't as important as they are today. So going back to where we have been more successful as of late as technology forward customers that want to get maximize the value of the platforms that they're providing to their customers either in a service provider environment or enterprises that are serving their enterprise customers. And so we're focused on the application optimization of that.

And to your point about customers, of course, AI is top of mind, how to leverage those platforms and NVIDIA has been leading the charge, but we have -- in that grouping platforms with AMD, we have platforms with Intel, ARM, others. And those will be application optimized for those customer sets. And when you think about why go after all these others versus focusing on one market, if we serve the highest element of the stack, the compute platform and the integrated system in the form of DCBBS, which we'll talk about, there'll be more customers that will be attracted to what we're bringing to the market, and it will help fuel growth in a market that's expanding quite rapidly right now.

Got it. So Michael, when we think about the AI server space, right, what generally the discussion ends up being is the trade-off of revenue versus margins. So help us understand like how does management trade that off, right? And when you look at the opportunity set that you have, is it better for Super Micro to try and gain more market share? Or is it the time to focus on margins or both? Just give us your thoughts and management's thought on this.

So our first thought is to serve customers, right? From that perspective, we have a lot of customers coming to us asking for solutions. And so the trade-off over solving a customer problem where we can leverage that platform for other customers downstream, there may be some margin give up there, so to speak, as we develop those -- that platform. That's kind of gone under the covers. So we're very focused on the margin element and optimizing the solution for the customer and bringing more to them. And we've always done that. And now we have more shots on goal to do that.

So as the consequence will likely be "market share" I know the market likes to look at, hey, who's gaining share, who's winning share. But right now, it really does appear that there is an expansion of opportunity. At the same time, differentiation is going to accelerate, and we're going to bring those products in an expanded format to the marketplace. So it's a balance. I know it's not like we would like one versus the other, but it's a balance, and we're trying to drive the growth of the company. And again, if the size of the market is anything what our partners talk about, $2 trillion to $4 trillion, 2, 3 years out, and we say 10% of that market, it's a $200 billion revenue opportunity, and we're closing on [ $40 billion ] as we speak. So we have plenty of room to grow, and we have plenty of opportunity sets here to expand the margin underneath of this.

Yes. It sounds like a very exciting time to be in this market. But one of the things that I've noticed is over the last 2 years, if you look at the competitor set, right, it's not just the OEMs that one thinks of like Dell and HPE, you've got ODMs, you've got EMS companies. Everybody seems to be doing a data center rack for NVIDIA. So talk to us about Super Micro's competitive advantages that you see. Like where is like you were a first mover when ChatGPT came out. You were first to market doing AI servers. But talk to us about your enduring competitive advantage.

Well, at the core of the organization has always been bringing engineering skill set, scale and manufacturing, if you want to call it that, to the customer and solutioning the customer. So anyone can potentially assemble something, but can they integrate it? Can they make it work as a system? Do they have the management software? Do they have the servicing capabilities? Do they have the full stack? And we're -- with DCBBS, we're very focused on bringing those solutions to the customers above and beyond just selling a server. In the older days, this transaction was a server. We looked as a server company and now racks. So the backward view is like, oh, someone can build the rack like great, but can you get 1,000 of these racks to be integrated and work together? Can you get the reliability of those systems to the point where if you're a service provider, your uptime is 99.9. And if another assembler provides less of a figure, a lesser uptime, it costs them money.

So we're delivering tokenomics for these customers, and we're differentiating rapidly and with other and different platforms. So again, the market is expanding. There's a lot of players in the food chain, so to speak, on the supply side, et cetera, to make this happen. And it seems like the whole entire industry is focused on building out "AI" or leveraging this technology to the benefit of a business to mankind to GDP, et cetera.

Got it. So Michael, what clients are focused on now is the expansion of AI into enterprise and specifically using AI for inferencing as opposed to model building, right? So again, coming back to the fact that Super Micro has been phenomenally successful with the Tier 2 CSPs, the large model builders. But when we think about the enterprise space, and I'm talking about like, say, medium -- mid-tier enterprise or at some point, even small, medium business. Do you think that Super Micro offers something that its competitors can't? And how do you -- is that a space that you want to even look at?

Yes. So again, it kind of goes to solutions. So if you have an off-the-shelf solution even in an X86 type of world or an off-the-shelf solution for inference, right? One size does not fit all from an application standpoint from a customer. And we have a large OEM customer that has literally -- we have 20 different system builds off of X86 to optimize for all the verticals. And those systems are running of the S&P 500 all over the place. We have customers that have gone to find solutions in the retail space where they need [ ruggedy ], whatever it is, we're able to put that together. And the strength of the company would be on the manufacturing side, on the design side.

So we can design something for them, and we're fairly nimble to put them together for those particular customers, and we keep them. And they tend to grow with us. And a perfect example, I don't know if I should be naming names, it would be Twitter, where we provided the X86 platforms and that as the technology advanced from 140 characters to video, et cetera. And as the organization grew with their capabilities, like we've been able to deliver more and more differentiated or optimizations for them to benefit the organization.

So it's all about solving customer problems. Customers have plenty of problems. AI is expanding. There's applications that have not yet been full-scale delivered that are yet to be that will be the driver of more systems and more use cases. So we look to supply those types of customers.

Got it. As a follow-up to that, a question we keep getting from clients is when they look at Dell and HPE, the thought is that they have lots of enterprise customers. They're well entrenched in that customer set, and they provide services that are tailored to enterprises. Talk to us about the services that you can provide to these type of enterprise clients. Is it true to say that you don't have that level of service? Or are people mistaken in that? And can you talk to us about your level of service?

Yes. So on that front, we stood up some of the largest clusters. We have some of the largest suppliers or service providers. There's more coming on stream. They need support. We're there for them. We're there for our broader base of customers. I think if you look at the traditional IDC kind of Gartner share of the overall "market" we're, I hate to use the word number two, but we've grown up from that perspective. The organization is expanding to meet the opportunity set in front of us to support those customers. And so our service capabilities are improving in real time and the go-to-market is improving real time.

And yes, for sure, our competitors have some brand names and some history and some legacy that helps in some cases and hurts in a lot of other cases. And if we're talking about innovation, bar none, like customers know by the virtue of us serving some of the most advanced customers out there that we have systems that we can solve their problems, and they're going to come to us, and we'll support them in any way we can and develop that.

Got it. Just to round out the discussion on customer types. You've talked about sovereigns as being another class of customers. I think you had an announcement with DataVolt a couple of years ago. So how is that customer set evolving? And do you think that they have different needs that Super Micro can address?

So from a sovereign perspective, and I can't speak for every nation. I mean there's plenty of them, the anticipation in the design plans. I think we just made a recent announcement with -- connection with Spain, Catalonia, as an example, something that we've done also in Korea. So there's lots of activity there. And I would imagine that they're a little more -- a little slower governments, if you want to call it that. But at the same time, I think that they're executing some of their initial deployments through some of the NeoClouds.

So you're seeing NeoClouds that are forming to serve the particular areas and the sovereigns will want localized data control, et cetera, have a different set of circumstances, but still we'll want a highly tuned, efficient, fully enabled system, so a total solution. So it kind of fits into the DCBBS mode that we're presenting to them to solution those customers. And so I think the activity there is good. It's phenomenal, and there's lots more to do in that particular segment. So yes, that's what I would say about that.

So for those of us who don't understand this term DCBBS, can you just kind of help explain what that is? And how do customers order it? Like would a data center operator say, give me 3 DCBBS and -- how does that work?

So it's tough on the excel line item for you. So I get that, right? Like what is it? So recently, at COMPUTEX, we showed a pretty broad swath of the different components that go into the data center. And so what we're trying to do for customers, because of a customer saying, "Hey, I need a couple of servers, right?" Well, the conversation is like, well, has gone to "I need a couple of racks." And we've noticed that over time that a couple of racks, they're having a difficult time in integrating those racks and connecting it through the networking stack or through the storage stack, quite frankly, to power cooling.

So what we're doing is designing or helping them design a full suite of solutions to fit the data center, not every data center is the same, not every power configuration is the same and some have different constraints and requirements. So when we -- when they start talking about platform, we're rolling out AI, we're on the Blackwell platform. We want to be on this platform. What can you do for us to enable this? So it's enablement technology and data center building blocks. So we're building data centers. So it's no longer like you come to us for a part, which would be easy for you to model if it was just a part, right?

So on that standpoint, we talked about the margin element. So -- and it also ties to availability and readiness of the customers. So we've had customers that have had issues with power at the site or there were some networking components that weren't at the site and the networking element held up the verification of a system so that revenue recognition would occur. So there's all kinds of things because it's very complicated to bring all these parts and components together for customers to do it. And we said this before in the past, the hyperscalers have teams of engineers that do these things for different platforms across their footprint. And we all noticed that they're using different platforms for different problems, right?

So the broader market will ultimately go that route and DCBBS is us to enable those customers to do that. And we've stated that it's margin accretive from our perspective. It's also a way to solution the customers so that we have the competitive element is in our favor. We are doing the engineering and the manufacturing for the most part here in the U.S.A., working with our partners in the U.S.A. and addressing these customers and providing these solutions. And it's working. The growth rates of the company are excellent, and we're working on getting to a higher margin run rate as we exit the calendar year and into '27.

So you brought up a couple of things that I want to touch on. First, on component availability, right? So are there still parts that you're having problems getting? And is that impacting revenues? And you've given a certain guidance for the year. Like how should we think about the impact of these component shortages on your revenues?

Well, there's a lot of components that go into a rack, a lot of components that go into a data center. So it's pretty difficult to isolate which ones. I think prior to our earnings report, The Street was concerned about memory and memory availability and the margin compression that we see. And obviously, through the reported results, we showed that, that was not a constraint for us at that point in time. So we're working through it. We're working through -- we have a pretty good idea of what our customers want. We're a major supplier. We're a major buyer at the same time. We're working through the supply chain with all our vendors to alleviate any problems, if you recall, during the COVID period, not that we want to talk about COVID because we're tired of it.

But the ability to change -- interchange components and parts really helps us in our design. So I think the supply element will just work through as we've shown in real time to deliver to customers. So it's probably always going to be something that we have to manage, and we're pretty good at it. We've been doing it for 32 years, going on 33 years.

I want to talk about manufacturing capacity. So are you at the point or Super Micro at the point now that you can deliver 6,000 racks per month? And how many of those can be liquid cooled? And when we look at your footprint, what goes into management's decision to add more capacity? Because I think your existing capacity can support a lot more revenue than what you're guiding for this year.

Yes. So Charles has always been foot forward on making sure that we have the capacity to serve customers and customers at scale. So now we're a material scale player. The split is 3,000 liquid, 3,000 air cooled. There's still a pretty strong market for air cooled. I mean most of the data centers out there are air cooled. Through DCBBS, by the way, we can retrofit and improve the cooling or the thermal footprint for our customers, which will give them more performance so they get more for their dollar out of their existing purchase. So there's some interesting benefits there. But the capacity element through automation, through optimization without having to build more, I'm sure we can lift those numbers as we move forward.

That all said, we've made some announcements, and we have been expanding capacity. And so the view that we have on a long-term basis of the volumes that we think that we'll be able to serve is there, and we're putting that capacity in place and the CapEx required is fairly light from our perspective, we manage through it. And it puts us in a good position when we do come to multiples of scale customers, they know that we can support them, and we can support them for many, many years to come.

Got it. Let's talk about margins. So margin performance last quarter was good. There were some onetime items, but you're guiding for better margins even this quarter, I mean, 8%? Talk to us about how you see margins progressing? I mean, should investors think that there's a path to double-digit margins this year? Or just how aggressive should investors be in thinking about margin progression?

So the end markets and the environment is very dynamic. So I think we all know that. From a margin perspective, we've been discussing or talking about the path to double digits on that front. We've shown that we can get there. It depends on the customer and product mix. So some customers might have less differentiation in the build. But the solutioning element and the diversification of the customer base will be very helpful. It will be helpful to be able to deliver new innovation in the form of AI CPU systems that are built on x86 or ARM type platforms where our competitors might not be there yet and they might not be yet there to incorporate the elements that would stand those systems up in the total solutions.

So when we do those things in the backdrop of large NVIDIA type deployments on balance, and we will get to a much higher margin revenue run rate. And we're kind of looking at a step up over time as we exit calendar year. As you know, our year is over June 30. And fiscal year '27, we haven't provided guidance specifically on that yet, obviously, we do at the end of the year. But the cadence of the business suggests that there's just a lot more to do with customers and a lot more product to bring to the market that could be margin enhancing, and we should be well ahead of competitors.

Got it. I have a lot more questions on this, and maybe we'll come back to this. But I want to ask you over the last 1.5 years, there have been several headlines that we believe have been distracting, if not have hurt the brand of Super Micro. I want to ask you, how does leadership at Super Micro hold itself accountable for the actions and operations of the company? And what measures is management putting in so that it can address investor concerns?

So we've done quite a few things under the covers to address -- I wouldn't say concerns, but to improve the strength of the organization. Certainly, some of the headlines haven't been fantastic. So we're making clear steps, and we've articulated those steps over time to the market as we've gone through. So I think there's not a lot to add today in that respect. But we're conscious on continuing to -- continue to improve processes. At the same time, customers realize that the technology that we're bringing to the market is superior. And we'll balance the 2, and we'll overcome any of the obstacles that have potentially occurred in the past.

So I want to touch on two things. One is on the recent export compliance issues. I know that Super Micro is having an internal investigation. When should we expect any findings? Is there a timeline for that?

So from that perspective, we didn't provide a timeline because obviously, we're not -- it's independent. I would imagine that, that would be wrapping up in reasonable short order. And when we get the results, we will share them with the public.

And then the second thing I want to address is like you had some issues with internal controls that you were addressing. Talk to us about like how many issues were there? How many have you addressed? And again, what's the -- how should investors think about the timeline for that?

So I think the one thing you have to take a step back on is the explosive growth of the organization and the changes from the processes internal, and these are system level upgrades to SAP, et cetera, linking them to inventory management, MRP, et cetera so -- CRM systems. So we're going through those growing pains as we speak, and all of those will need to be fully tested and we'll need a period of proven success. And we're tracking to do that. It's a very -- it's a large effort as we want to get that aligned and move forward and to support the next leg of growth that we see coming. So that's where we're at there.

So Michael, this is a working capital-intensive business, right? How does management make that trade-off of how much credit to give to customers from a days of receivable standpoint? How much inventory to have and when you come to market for more funds? How is that decision made? And how do you see working capital and free cash flow trending over the next couple of years?

So I think if you take a step back and look at the product set and you take a look at what we're going to bring to the market and take a look at the margin profile and that we have said or articulated that the customer base should expand. The DCBBS element will contribute. There will be more differentiated product across different zones, different marketplaces. Those things will compress the -- should compress the working capital cycle and alleviate those things so the cycle times. So we've chewed through some really large contracts in the past from time to time and those cycle times have been out of the 90-day period, which show that kind of strain, but they always catch up, so to speak.

So we're conscious of that. And I think the margin improvements and the diversification on the customer side should help that. All that said, okay, the pace of which customers are trying to do and the programs that they have in place, if they still stay at this pace, I mean that's -- there could be some pushes and pulls on the timing of getting that working capital cycle compressed to the point where it's optimal, and we're buying shares back in like we've done in the past. So that's what I would say there.

So when we were talking earlier, you mentioned a couple of names like AMD, beyond NVIDIA, there are other companies with accelerators. Is Super Micro qualified to build the Helios rack, the MI450s that are coming up? Or do you expect Super Micro to get qualified? And do you think that you're going to be building racks for AMD as well?

So they're a fantastic partner. We work very well with them, very closely with them. And I am sure that we will be -- we're already delivering AMD-based products that we'll be providing those for our customers and supporting them as we move forward. So I don't think there's a question there. Will we be doing it? It's a matter of like when will we be doing it when customers and the products that line up for delivery.

So there's kind of a strange situation happening in the industry where if you look at non-GPU servers or non-GPU server racks, I mean, a lot of manufacturing companies are saying that their margins are better on those versus AI GPU servers maybe because of competition. So when you think about Super Micro's focus, would Super Micro ever consider maybe increasing your percent of revenue from non-accelerated racks, which I think you said 80% of your revenue was from AI-related or GPU-related servers. Talk to us about that. I mean, is that a focus for the company?

That's an absolute focus. I mean, again, historically, like we grew up in the X86 world, right, supplying customers. And if you take a look at customer behavior, 10% of the customers are looking for the -- just roughly, right, the best performance and they chew that performance up and they'll buy the next set as soon as it comes out. And then there's 10% of the customer base that is the lowest price. So you balance those out, that's 20% of the market that's like ideal for -- potentially for Super Micro, right? So we've been busy with the AI side, but those are enterprise customers. The NeoClouds are serving the enterprise. So indirectly, there's an enterprise component. There's a heavy dose of CPUs in the AI systems themselves. So people aren't really calculating that.

But as you move forward and you look at serial-based Agentic behavior, we will have systems optimized for those customers with our partners, and we will deliver a lot of volume in that space. And again, you mentioned competition. This highly optimized and flexible manufacturing environment is kind of contra to a large -- we're stamping out 1 million units, and we can't change our line for anyone. So I think the future looks really bright for this, for us, and we're very focused on bringing the brand because we've been so successful with these higher-end systems to the rest of the market. So it's 100% focus of the organization.

So a lot of component suppliers are asking for long-term contracts. I mean, the memory guys, the HDD guys. What does Super Micro think about this? Because if you have such high revenue growth, would it make sense for you to kind of like guarantee some supply over many years?

So on that front, we don't typically talk about what our contracts are with -- on the supply side. But we've been very effective at managing that and working with our partners. I'm sure they would love us to sign 5 years at like up 100%, right? So I don't know if we want to do that. So we've been very, I would say, frugal, but very focused on that element. We kind of have an idea of what we need at a base level. And so we're trying to keep that in balance in real time. And I think it's an art as opposed to a science. It's partially -- it's a slight competitive advantage, actually not slight, a pretty big competitive advantage to be able to manage the supply side.

When I look at Super Micro's revenues, I think most of your revenues today are from the U.S. or from Asia. You also have some revenues, I guess, from Europe. How do you see the European market? And when you think about investments, and I'll ask you about CapEx and OpEx, do you think that there's more investments to be done to grow your presence in Europe?

We have a good presence in Europe. We have some really good customers that are on stream there that are big and healthy. We see more. I said earlier, we signed some things with -- in Europe, Southern Europe that look pretty compelling. And I think there's lots of opportunity there. So there's no -- we're not lacking opportunity in any zone in the world. We tend to respond where demand is and work as fast as we can to help those customers.

So look, we've got about a minute left. Talk to investors about what they should expect from Super Micro over the next year. What are they missing about the Super Micro story? What's the takeaway?

I think the takeaway is that we have a fully fleshed out a product offering that's differentiated. We're solving customer problems. We're at the forefront on the AI side and then powering whether it's CPU-based Agentic or it's AI learning, so to speak, the machine learning or not the machine learning, but those elements, we have all those. We're looking at moving margins higher. We think there's a couple of hundred billion-dollar opportunity for the organization itself. And if you map out the valuation and the fact that we're trying to deliver shareholder value over the long term and build a much, much durable, larger organization. We've been doing that under the covers as we speak and materially larger than we were the year before and the year before and the year before and ironing all those things out and becoming a major -- we're already a major player, but a much larger player.

Okay. I think we've covered a lot of topics, Michael. Thank you...

Thanks for having us. Thanks, awesome.

Good afternoon, everyone. Welcome. I'm Samik Chatterjee. I cover the hardware and networking companies at JPMorgan. For the next fireside chat, I have the pleasure of hosting Super Micro and from Super Micro, Michael Staiger, who is the Senior Vice President of Corporate Development.

Michael, thanks for being here at the conference. Thank you for your time.

Maybe let's start with the broader question. Super Micro initially to investors was known as a server vendor with the advent of AI, the company moved into being a rack vendor, you now do fully liquid cooling integration. You've now rolled out plans to do DCBBS, which is your data center building block solutions, which includes compute rack, switching, et cetera. So a broad range of capabilities, and that's expanded over time. Just highlight to us or maybe talk -- flesh out a bit more how you're thinking about the addressable market and expanding those? What's the strategy going forward on that front?

Yes. Great. Thanks for having me. So it's interesting that the evolution of the company has been growth and empowering customers and bringing solutions to the market. And if you were to take the view of our platform providers that the market is a $2 trillion to $4 trillion in the short term. And right now, we're 8%, 9% in supplying our customers of that market, and you apply that math to the out years, it implies a $200 billion revenue opportunity for the company.

Now if you go a little backwards into the -- into how we get there, and I think we characterized on our recent earnings call total solutions provider, data center provider. So from parts to pieces to servers to racks to more integration. And I think you've heard some others at the conference talk about the speed at which customers are moving and the needs that they have. And we would argue that in between the software and the silicon layer, there's a significant amount of value add to bring to our customers.

So -- and we've always talked about application optimization and architecting those systems for those customers to capture that. So it's difficult for me to tell you what the exact TAM is outside of the fact that we'll have a growing piece of it. And from that perspective, we're very well positioned.

Okay. So maybe just keep going on that thread. How do you think about the margin opportunity that, that provides you? As you go more into either DCBBS or more racks than doing individual servers, what is the margin opportunity?

Yes. So we've had an interesting margin progression over the years. Again, I think the -- if you look backwards, there was a significant amount of thrust on getting some customers to market and standing up some large footprints and you can see the power in which they're moving and the speed they're moving. So from that perspective, as our customers now on a continual path of growing and expanding the opportunity set for different platforms and bringing more of the systems together. You recall that there were some pushouts or delays, right?

So one of the elements of the pushouts and delays kind of wraps around what we're doing with DCBBS basically total solutioning to the customer, right? So the customer is not waiting. So time to online becomes paramount. So they can get their services in front of their customers so they can drive revenue with the material sums of dollars that they're spending on the equipment themselves. So it kind of is a full-scale wraparound of the strategy that we're deploying for the customers.

And so in that speed and that cadence is faster we can get these products to market, the faster we can architect these things at DCBBS, we're talking about 20% baseline gross margins on top of the rack build type margins. And over time, we expect that the solutioning will become a material part of the -- a large part of the business and it will change the margin structure as we go forward. Quite frankly, at the same time, it will be pretty supportive of turns and working capital needs.

Got it. And maybe lastly on that front. Talk about the competitive set of companies that you go up against? How does it change when you look at these different parts that you're more vertically integrating into how does the competitive set change for the company?

So we kind of take a view of a customer approach first, right? So -- and I know everyone out there has a view of, well, there's a couple of OEM competitors that we have. There's ODM competitors. We'll leave names off the table. But when the customers come to us, they're generally looking at how they can get their applications through that system faster.

And when I look at what we're doing and the platforming that we're doing for our customers, generally, we're first to market because we can actually turn the systems, the silicon makers, the platform providers of the world, we can get their systems into customers' hands -- and right now, that speed is starting to accelerate. We're talking about inferencing. We're talking about agentic AI, and there's specialty or systems that are developed around those particular platforms that we feel that will lead in the marketplace. And the core customer set will expand and they'll start using some of these things agents will be -- basically could be CPU-based or it could be GPU-based.

But whatever the customer needs, we will develop that for that customer. And that -- when you do those things, we don't have a commodity-like build, so to speak, which is what kind of the prior server world, if you want to call it, was thought to be. It's all commoditized. But we're taking these pieces and these parts and components and putting them together, the memory, the drives, et cetera, and making something special for customers that is -- should be margin accretive as we go forward and will wrap DCBBS around it. yes, NVIDIA platforms, we support a significant -- every form factor that they have. We do the same thing with AMD, Intel, Arm, any system, any silicon, any rack, any data center.

Okay. Great. So DCBBS, let's talk about the portfolio there. I mean the offering includes a broad range of solutions, like that solution has a broad range of products you can integrate with it. How are you making the decisions in terms of make versus buy? Do you eventually get to a point where you're developing proprietary IP for most of those components? Or are you looking to buy third party and then integrate it?

So we like to maintain the flexibility, and we've always had the ethos of design and develop it internally ourselves. And so in general, as we move forward, then we'll take other -- obviously, take other components and incorporate those. Right now, some of the activity in DCBBS is around the power, the cooling, actually, we lead on the cooling front, we have some innovations there.

There will be memory side cars, the CXL, CMXL kind of opportunity sets, and we'll be able to wrap them around the systems that were delivered to the customers in the form of DCBBS. So I don't think any -- every customer is going to take all the particular components. It depends on what their storage and networking strategy is. But over time, we'll -- and you probably know and have seen, we have relationships with many of the providers and the storage vendors, and we'll build the back end of it and we'll optimize on that front.

And those are higher margins in general -- and we will be doing more and more of that and typically shy away from purchasing anything. So we're also not and want to be flexible because some of these architectures will change and some that are wanted is going to be the next thing might actually be the next big thing. So we don't want to make a material bet in any one particular category, but we'll develop and optimize them over time.

And let's touch on the software stack and the services. Those things too will be are a part. I think last quarter, we did $140 million in software and services, and we think that we can exit the year -- the calendar year at $1 billion.

Okay. Okay. Maybe let's talk about your competitors a bit more. You talked about the ODMs and how you differentiate them. But how do you differentiate relative to companies like Dell or HPE? And what do you think is the strategic moat that doesn't enable them to do the customization that you're doing for your customers?

Well, we're Silicon Valley based. We're -- I think we've publicly announced that we've expanded our capabilities there. We have significant footprints. We're next to all of our platform providers. We're working with them in design and integration in real time. We haven't outsourced or design portion, the engineering portion or the manufacturing portion.

So we generally can control everything that goes into the system element so that we can turn the next generation or the coming generation or quite frankly, make the current generation better with enhancements. So that control plane is very important to a lot of our customers. And so it's a huge differentiator. Another differentiator is scale sourcing, scale manufacturing, scale engineering. And so those things are pretty important. And that's -- I think that's why we're almost 10% of the market.

Okay. Similarly, NVIDIA has expressed interest in more vertical integration over time as well. Do you -- how do you envision that you convince your customers that a customized solution is the better approach than what they would call like a reference architecture, for example.

Well, I think all of our vendors, our platform providers have some form of a reference architecture, right? So the end customer knows what the baseline is. And so it's been broadly discussed at NVIDIA's "taking more control over the design." There's a lot of elements in the design are far more advanced than the prior one. So each step of the way in the evolution of, let's say, server to rack data center has become more complex and more integrated and more difficult. So the co-design, so to speak, is an important piece of this.

And so we're keeping pace at that, if not moving it forward. So we'll help them for sure. But at the same time, if you look at what's happening in the end markets, there's a lot of other platforms that are in demand or use cases that are emerging that expand beyond just being tied to one platform, which is kind of how we got to this point. So the differentiation is there, is we're optimizing for all those different platforms, and we'll be well ahead of our competitors in delivering those.

So maybe continuing on NVIDIA. We have this upcoming Vera Rubin platform or right now where they're shipping out the Vera Rubin platform relative to Blackwell or Hopper in the past. How are you thinking about the volume opportunity as well as the pricing opportunity for Super Micro within those deployments?

Well, for starters, I think it's the back half of the year is I think what we've been telling folks. From a standpoint of volume, their volumes could be pretty large. But at the same time, there's a significant amount of other products in the stack that customers need. Not every customer is going to be a Vera Rubin customer. There's other customers that are looking at scale platforms to take advantage of Vera Rubin in the form of agentic CPU, AI CPU kind of -- so we'll integrate all those for our customers.

And not only will they integrate, but we'll see if we can put together a solution set for them to run that. So when we get to the Vera Rubin element, we won't be just assembling sheet metal. We'll be delivering solutions alongside with -- to leverage the platform and/or what are the other platforms that customers are going to wind up using to leverage their workloads.

Okay. But how are you thinking about pricing in terms of -- is the step-up similar to when you went from Hopper to Blackwell? Or maybe help us just framework that in terms of...

I don't think there's some generalized pricing that's been tossed around and it is higher. So we'll just work through the transition. We don't have details on numbers at this point in time or guidance for that matter from that product set.

Okay. But it should be good. what are you seeing in terms of customer demand for alternative GPUs like AMD and others? Like is that pipeline? How big is that pipeline? Is it building well?

The pipeline, I would say, is building, is big. I mean it's evident in the marketplace. It's evident in the prices of the platform providers. So all of a sudden, folks are waking up and realizing that it's a much, much larger market in parallel with NVIDIA. We'll see what they say out Wednesday. But the opportunity set there is pretty expansive. We have some recent partnerships that have been announced, the particular Arm stands out. But everyone knows that we're in line with AMD. We have plenty of products with Intel and Arm and there's likely others in the pipeline from a development perspective. I would have to add that almost any silicon provider or a platform provider is coming to us to ask for assistance providing some form factor that it would be application optimized for that particular set. So the demand is just -- it's not a demand issue at all from our perspective.

Okay. Maybe let's talk about the industry discussion around CPUs and CPU-based servers seeing an inflection with agentic AI. I mean when I look at your revenue mix, 80% of the revenues you reported, I think, last quarter were driven by GPU platforms. How should we think about Super Micro's leverage to eventually, if we were to see an inflection in CPU or CPU compute TAM, how would Super Micro be positioned for that?

Well, I think, number one, we ground our position in the marketplace on a CPU-based architecture for quite some time. We were able to put more compute in the footprint at a lower power envelope, a better thermal envelope than anyone else at that time, as you know, enterprises didn't care. Operators don't care. There's different use cases and agentic AI. You think about the agent, and it's a serial process that will go back to the GPU itself and then does this thing. And so it's a serial process. We already have some outstanding systems, liquid cooled CPU systems that are available out in the marketplace. So we think it will be quite helpful because we'll be able to package the entirety of this together, whether there's the model portion and the inferencing portion or the agent CPU portion on top of just general purpose enterprise workloads. So this is a boon to the business and a boon to of the market opportunity.

But are you seeing any of that in your orders?

Yes.

Got it. Customer concentration. In fiscal 2Q, one customer, I think, was 63% of revenue. In fiscal 3Q, you had two customers, 1 27%, 20%. How are you thinking about diversifying the business longer term? And which are the most customer -- important customer verticals that you then need to pursue to deliver on customer diversification?

Yes. So the customer concentration element will be fairly easy to solve. We're already solving it today. We're solving it in a forward look, basically where -- we're designing systems for our customers that we know that will span out. We've already discussed the fact that we'd see customer diversification. We see product diversification. There'll probably be limited -- the pricing competition in those ancillary or CPU-based systems will be a little bit different.

In smaller sizes, you won't get the pricing power. So I'll just add another point with -- we have a large 63% customer that I think is now going to be a large customer for another private entity. And so there's -- the demand is pretty intriguing if you catch what I'm saying. It doesn't look like you're catching what I'm saying, but a whole entire data center just went to some. And so it kind of speaks to the volumes of what's going on and the opportunity set here. So as that expands out, we expect diversification to occur. That's the answer to the question. Diversification is going to occur. It's just when, right? The back half of the year, yes.

Okay. So Anthropic becomes a customer is what you're saying?

Somehow indirectly because it's going to lead to your potential next question.

Yes. Because this is one of the pushbacks that I see a lot from investors, which is NeoClouds are the driver of demand that you are seeing some of your competitors are seeing as well. But the argument that they sometimes make is that the durability of the demand is difficult to underwrite. How do you think about derisking when you are particularly taking in orders from NeoClouds, how are you looking at it from the aspect of derisking some of the demand or demand indications they're providing you?

So from a demand perspective and NeoClouds, it's quite -- I think it's quite evident to everyone that the NeoClouds are getting large contracts from the hyperscalers, and there's a dispersion of these workloads across the NeoCloud base that's fueling the NeoClouds and the advent of more and more, so on top of the -- some of the model builders expanding. So the NeoCloud as a class will get bigger. We're seeing that now. Sovereign is coming through, I wouldn't say pretty quickly, but they're also using the NeoClouds and the enterprises are starting to wake up.

So the productivity that can be obtained with these tools is significant, and the customers are seeing that. And so again, it kind of speaks back to the diversity of demand and the durability of demand. So I don't know if the -- what the numbers are, but of the amount of people that are using AI or to potentially could use AI is significantly small. The use cases are large. We can all pontificate of what that would look like, but I think it's going to be pretty impressive. And we're here to support all those different types of use cases and make the cost of tokenomics very optimal for our customers. And so we're moving at the speed we like to do that. And again, part of that portion here is system optimization on top of wrapping the solution around that, and that lowers tokenomics for our end customers. And so we're all in on that.

Got it. You did mention towards the end there that the enterprise is waking -- what are you seeing on that front? Is it starting to be material? Is it focused on certain use cases?

So I like the enterprise discussion because the intriguing part about it is the NeoClouds, I mean, the argument is, is CoreWeave an enterprise? I mean, I argue it's an enterprise, right? So from that perspective, the top tier of users in the global corporate base are enterprises, and they're all seeing the higher end -- the higher segment here or the more foot forward enterprises are signing contracts and moving forward, and we're seeing that through our customer base. But the block and tackle enterprise, that's going to buy a couple of servers on a yearly basis. We can still serve them, but we're pretty focused on the customers that are very technology focused that want to drive greater economics in their business. So there are plenty of those customers out there.

Good. You had certain challenges in your fiscal 3Q, there was customer readiness issue that pushed out some revenue into fiscal 4Q and potentially some beyond that, are you expecting to recover completely recover the revenues that were pushed out? And are you seeing as you engage with your customers, this becoming more of a systemic issue in terms of data center readiness that you might have to navigate going forward?

So readiness has been an issue for the past many quarters, right? And there's been some pushouts and movement around, as you know, to architect. Pretty easy to deliver a single server back in the good old days, right, but to deliver an entire data center or a data hall is a little bit of a different emotion and it takes a little bit more time planning.

So in some of these cases, the customer -- the power is not ready, whether it's the shell, whether it's power to the building, those types of things that have occurred. They're likely to occur in the future. We try to determine based upon what customer discussions are that when these things will be ready and the time and the window of shipments. The other factor would be a customer that was looking for revenue recognition on the verification of the system working, but the networking switches might not be on site, so you can't verify the system.

So from that perspective, those types of things have happened. We try to mitigate those. So it's one of the reasons why our guidance parameters are fairly -- I wouldn't say loose, but have a little bit of leeway to them. And typically, we've made up any -- all the pushouts in 1 or 2 quarters on a go-forward basis. So it's not perfect, but the growth rates that we're putting up are pretty material, and we're trying to match those or meet those.

Okay. Just a heads up, if anyone in the audience has a question, please feel free to raise your hand, and we'll get a mic over to you. But in the meantime, let me just continue to sort of go down this question that I have -- question list that I have.

Supply chain constraints. Clearly, that's becoming a bottleneck in a lot of the industry. what's your planning in terms of supply? And what are you doing in terms of either purchase commitments or inventory to be able to have supply assurance? And is it then easy or how are you finding it whether it's easy or tough to pass that higher input cost that you then pay to your customers?

Well, I think that prior to us reporting a recent quarter, people were pretty focused on the memory side of the house and to some extent, the CPU side of the house. And our margins kind of reflected that we didn't have an issue there. We tend to pass through costs and work around in any of those pricing challenges on a real-time basis, and we try to match them to order flow or forecast. So we've had a lot of experience in the supply chain management side. And we're just working through whatever shortages that we have. And in some cases, our customers are helpful in helping secure some of that supply depending on needs and requirements. So it's a challenge, and we're working through it, and so far hasn't really been a material headwind. A lot of work internally to make sure it is not, but, yes.

Any questions from the audience?

Just following on supply and memory. I think the follow-up would be a number of your customers are in a cohort that maybe have more leverage or not quite as much margin to take those price increases over time, especially if supply remains scarce. So just how do you think about that? And is there any risk that there might be friction to passing these price increases along going forward?

Do you want to restate the question?

Question is a lot of customers might not have the -- necessarily the leverage to take that price increase from you. So how does it impact demand?

Well, I think the cadence at the customer level has been that if they don't take the price today, it's going to be worse later. And so they're trying to work around it. So the behavior of the customer, the average customer, I would say, not scale customers is markedly different than what most investors are used to. So I think they're realizing that they have a need, they're going to have to pay for it, at least in the short term. So I think that's a pretty shocking statement of view that that's the case, but that's the behavior we're seeing.

Maybe moving to gross margins. Your execution in F 3Q on that front as well as the guidance for F4Q is much better than at least what the Street was thinking and we were thinking. How much of that is a structurally better execution towards margins or just one-off mix driven that these 2 quarters are a different mix than your usual quarter?

Well, recall that we were absorbing a 63% customer. So you can imagine pricing and et cetera, was a factor and the customer and product mix, what we were doing there had a little bit of a headwind. So I think the majority of the change was working off of that customer. Expedite fees and inventory charges and tariffs were lower in the quarter, and they were lesser of a factor.

As we move forward into the current quarter, the customer mix and product mix is generally where we're landing with the current margins. And so that's the driver there. And to be clear, the ultimate goal and the direction that we're heading in is to walk margins up. We're doing that on multiple arenas.

One, we have a broadening of the customer base. We have a broadening of the platform. So the pricing pressure on those platforms should be different because, quite frankly, there will be a few competitors that will be able to deliver some of the systems that we're going to be delivering to customers in bulk. And so that -- those things, those factors will be supportive of a double-digit gross margin element as we move forward.

Okay. Maybe just quantify that a bit more. When you say double-digit gross margin long term, is that different from the progress you used to have in the past about 14% to 17%?

So those numbers kind of pinned to traditional compute platform kind of numbers. And so the product set is materially different now. And if and when, as we do a mature DCBBS, those margins can be materially higher. If the platforming the different various platform providers expand and those use cases go up. We're absolutely 100% positioned to deliver to those customers' solutions set. So I don't want to put an upper bound on it, but there's a lot of possibility that the margin profile in a year out would be much different than what we've talking about today.

Got it. And as much as you said, the long-term margin target is double digit, how much of a discipline around what you do to pursue market share versus manage margins? Are we going to see more on a consistent basis? Because one would argue like having a concentrated customer with 63% of your revenue is probably more that you're trading off share, market share instead of taking margin, a better margin, right? So do we see that consistency come in? Or is it still going to be, okay, if there's a big customer on offer, we would rather go for that and focus the margin to be a more margin instead?

So as we all know, is a founder-led organization. He is customer first. So there could be opportunities that pop up that move the needle in either direction from a customer perspective. So what I'm trying to say is we may not walk away from something fairly large if we're able to do it. But we did call out or he did call out that we're focused on a balance of revenue growth and margins. So we'll see. It remains to be seen. But I think the trajectory is the double digits and supporting the customers, realizing the customer base is going to be expanding, the product set is going to be expanding, won't be reliant on one particular build that could have a material impact to the numbers.

Okay. Moving to operating expenses. You had high 20% year-over-year growth in F 3Q. Guidance for F4Q implies further acceleration relative to that. What are you spending on? Where are you directing these OpEx investments towards?

I mean I think the operating expenses is for scaling the business and we haven't made any significant outsized investments on a relative basis. So I don't think there's anything major to call out there. We've been very lean or maybe slightly too lean and pretty focused on not having any outsized purchases in the mix. So I think continue to be pretty focused on controlling operating expenses as we move forward.

I mean is part of the operating expense increase related to DCBBS? Because you mentioned DCBBS is a better margin, but is it a better margin on the operating margin profile as well once you include hiring cost?

It would be implied that it would be, and we may give more color at the year-end when we provide guidance for fiscal '27.

Okay. Good. Maybe just on the corporate side, can you provide us an update on the internal investigations related to some of your employees being involved in selling unauthorized compute to China? Do you expect any financial restatements due to those investigations?

I think we were pretty clear on telling the market that if you read the indictment, that we're not the target. We separated those involved quite quickly. The Board acted quickly, set up a special -- the results have not yet come in from that perspective. We recently filed our Q. So from our view of the incident where there was a falsification of documentation at almost every level -- at every level and even to the federal level, that's an outside very extreme case.

And the company is moving forward and serving customers and shipping systems and engaging in new builds. So when there's more details, if there are more details, we'll make them known. But just very fresh situation and we're fortunate again, we were not indicted, and we did not know about the situation until the indictment dropped.

Okay.

Hang a second. And we stated that we expect that there will be no restatement. Obviously, with filing Q is a pretty good indication there.

Maybe a couple more. At the end of 3Q, your total debt was $8.8 billion, cash balance of $1.3 billion, which to us looked like it's the lowest since you've had for a while. How do you then address your working capital requirements with that level of cash balance? And can you continue to support robust growth with that level of cash?

Yes. So we did call out that in the quarter that we had anticipated some payments in the quarter that kind of were pushed out into the April quarter. And so that was, I think, $2.7 billion. So we executed $12.6 billion and change in revenues in the prior quarter with a $4 billion ending cash balance.

So you kind of get the sense that those levels should be fine in the zone where we guided to this quarter. So from that perspective, the other element to this is as the customer base broadens out and the deal sizes are a little bit more manageable bites, the turns will be quicker. So there'll be less of a stress on working capital. But swallowing a 63% customer in a period has some ripple effects, and we're going to get past those shortly.

Got it. And last one, have you seen any recent change in credit terms from your suppliers just given the investigation, what's been going on? Have you seen suppliers change at all?

So we're fully engaged with all of our suppliers. And I would say we tend not to discuss those types of things and disclose those. So -- but we're fully engaged with them in helping them bring their products to market.

Okay. Great. I'll wrap it up there. Thank you. Thanks for coming to the conference. Thank you, everyone.

Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Third Quarter 2026 Earnings Call.

With us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, Chief Financial Officer; and Michael pager, Senior Vice President of Corporate Development. [Operator Instructions].

I would now like to turn the conference over to Michael Staiger, Please go ahead.

Good afternoon. Thank you for attending Super Micro's call to discuss financial results for third quarter fiscal 2026, which ended March 31, 2026. As you know, with me today are Charles Liang, Founder, Chairman and Executive Officer; David Weigand, Chief Financial Officer.

By now, you should have received a copy of the press 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, future business outlook, including guidance for the fourth quarter of fiscal year 2026 and the full fiscal year 2026.

These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or even events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier today, our most recent 10-K filing for fiscal '25 and other SEC filings. All of these documents are available on the IR 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's presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as a substitute for or superior to financial measures prepared in accordance with U.S. GAAP. 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 will have a Q&A session for sell-side analysts. For fourth quarter fiscal 2026 quiet period begins at the close of business, Friday, June 12, 2026. And for now, I will turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. We had a significant business value growth with our technology leadership and market expansion. However, before I discuss the specifics of the quarter, I want to provide an update on the recent development regarding the entailment of certain individuals formerly associated with the company. I must be clear, Super Micro is not a defendant, not a target or a grand jury investigation and Super Micro has a tolerance to any employee who violate -- law and regulation.

I am personally shocked and sentenced by this logic actions, which, in Norway represented the value or as of this company. We took immediate action by terminating our relationship with the defendant and are helping and cover in -- with the U.S. government. Additionally, our independent directors have launched a thorough independent investigation with up forensic and legal forms to ensure we continue to maintain the highest standard of integrity. We are not waiting for this process to finish.

We have further strengthened our global trade compliance program under actor leadership. Not only is the Super Micro -- committed to protecting advanced medical technology and following the highest and business standard, but continue to expand our manufacturing -- right here in United States. Again, the allergic actions or few individuals do not define us. Our focus remains on doing extraordinary work for our customer and partner and media industry with transparency and access.

Now let's talk about -- this was a quarter defined by value and focus for Super Micro. Despite the industry-wide shortage of key components, including CPU, GPU and memory. Our business continues to grow and expand. Indeed, our back order is now in another record high. We advanced and optimized our older data center infrastructure using our leading direct cooling ELC technology. Our focus remains on delivering the fastest time to online PTO in the industry, ensuring our customers can scale their AI factories quickly and most efficient. While our fiscal Q3 revenue of $10.2 billion was impacted by customer site readiness delay, our business on the rentals are stronger than ever.

This is purely a short-term delay. Several customers side will not yet equip with the power and -- required for their -- cloud deployment. And we expect to capture this revenue in the coming quarters. One of the most significant achievements this quarter was our gross margin recovery. which increased significantly to 10.1% non-GAAP, representing a 58% improvement over the 6.4% non-GAAP reported in the previous quarter. We are committed to achieving a sustainable double-digit gross margin model by increasing our focus on enterprise market and our DC BBS business.

Here are some key growth drivers. First, market share, business remains very strong. in the near cloud, solving AI and agent AI segment. We have been aggressively fostering the traditional enterprise and storage business for about 1 year. And we start to see strong growth.

Growing opportunities. Our data center building broad solution, DC BBS continue to attract old and new customers' interest and create new profit streams. By offering a total data center solution that includes complete liquid-cooling facility, management software, networking and service, we are providing much more value to our customers. as they're committed to our total solutions. Total mix and efficiency. We improved our product mix with some more unique value product in this quarter and thereafter. We also advanced our design of manufacturing, and more automation in our factories to build products faster with higher rate and quality and supply chain. We successfully managed inventory through a dynamic supply environment and took actions to reduce tariff-related cost operation. These efforts have improved our flexibility, on tax margin and support customer delivery time line.

Here is the bigger story. Super Micro is developing from a U.S.-based server designer and manufacturer into a total data center solution provider. We expand our business to help customer planning, building, deployed and servicing data center infrastructure for global enterprise and new cloud provider, especially. Our BC PPS business is central to this transformation, providing almost everything a customer needs to build an AI factory, including cooling units, networking, power sale, battery backup, management software and many other data center subsystems. Our DC BBS business continues to grow exactly as what we play, showing a consistent and accelerating contribution to our top line and bottom line quarter-over-quarter. And I believe our DC BBS welcome contributed more than 25% of our total profit in the coming few years as an IT technology leader for more than 30 years, we have consistently turned industry disruption into innovation and new strong opportunities, one of the key value and drivers of our DC BBS business. is our data center and management software. We see significant demand for the Super Micro data center and cloud software suite, including our super cloud composer that manage tens of thousands of systems or rec in real time. It provides comprehensive control over system and right label, power usage, cooling status, safety conditions and device utilization alongside many other clinical features.

Our management software feature also include advanced CPU and GPU -- which is a critical function for today's AI data center. The revenue from this new software -- is finally growing at a tremendous pace, increasing from less than $10 million per quarter, just a few quarters ago to $34 million last quarter and more than $46 million book for this quarter. By bundling subscription-based software and services alongside our hardware, we are strengthening our customer relationships and improving our long-term profitability. We expect BC PBS including software and service to continue its rapid growth and to become a major part of our key value medicine. We continue to grow and expand our partnership with many key suppliers, especially with NVIDIA, we are currently shipping many skill over their piece, rack scale systems, including GB300 NVL72, [ P300GXSKU, B21MV04 ] and influencing application optimized RPS product lines, and we are preparing to be among the first to market with the new variables systems. Including an [ MVA 72 ] Supercluster.

We continue to build on strong momentum of our AMB [ MIC50 ] platform. as we prepare for the next generation of AMD TD solutions, featuring APAC business and MI 400 series of products. In addition, we are working closely with Intel and up on the development of upcoming GM 6 plus platforms and a new addition to our portfolio including AGI GPU-based solutions. This system will deliver exceptional performance per watt. Specifically optimized for our growing demand of agentic AI workloads.

By leveraging Super Micro system building product solution, and data center scale within broad -- we can efficiently support a wide variety of compute platform and optimize them for different business verticals.

Moving on to our footprint. We are expanding our global production capacity with new facility to better support AI demand across the world. Our side in Taiwan, Malaysia and Netherlands, are all ramping up aggressively. Domestically, we recently announced our largest U.S. site to date. A new DC BBS campus in Silicon Valley, that's one mile away from our headquarters. This brings our total Bay Area footprint to nearly 4 million square feet, featuring a new buildings optimized for innovation behind production, and -- or a next-generation end-to-end data center total solutions. Within this new campus, we are building multiple large-scale validation and production facilities.

Some of them, including a cleanroom specifically to support our new DLC 2 subsystem and next-generation networking solutions, including advanced optical photonics-based device. With these expansions. We are on track to produce more than 6,000 or awarded the most powerful state-of-the-art rig for...

In closing, Super Micro continued to scale our revenue and scale up value. We have strengthened our governance, delivering a meaningful margin recovery. and expanded DC BBS growing in both volume and value through software networking, service and more. Our leadership in LLC technology pay our ability to deliver rescale total solution at the industry's fastest time to online will continue to fuel our strong growth. Keeping Super Micro at a center for our AI revolution.

With that, I remain very bullish about our growth in the AI and data center market. For the first quarter, we target $12 billion, given stable supply conditions. For the full year, we target $40 billion.

I will turn this over to David.

Thank you, Charles. Fiscal Q3 FY '26 revenue was $10.2 billion, up 123% year-over-year and down 19% quarter-over-quarter. As Charles mentioned, Q3 revenue was impacted by data center and customer readiness together with industry-wide supply chain constraints. We expect to recognize the deferred revenue in the upcoming quarters. Orders and backlog remain strong across our customer base driven by AI infrastructure demand with AI GPU-related platforms contributing over 80% of revenue.

During Q3, the enterprise channel revenue totaled $0.8 billion representing about 28% of revenue versus 15% in the prior quarter. This was up 46% year-over-year and up 45% quarter-over-quarter. The OEM appliance and large data center segment revenue was $7.4 billion, representing approximately 72% of Q3 revenue versus 85% in the last quarter. This was up 183% year-over-year and down 31% quarter-over-quarter.

For Q3 FY '26, we had 2 existing customers, each representing more than 10% of revenues, 1 large data center customer at 27% of revenues and 1 enterprise customer at 10% of revenues. By geography, the U.S. represented 69% of Q3 revenue, Asia 13%, Europe, 7%; and Rest of World, 11%. On a year-over-year basis, U.S. revenue increased 154%. Asia grew 1%, Europe grew 146% and the Rest of World increased nearly 500%. On a quarter-over-quarter basis, U.S. revenue decreased 36%. Asia increased 17%, Europe increased 105% and the rest of the world increased 392%.

The Q3 non-GAAP gross margin was 10.1%, up from 6.4% in Q2. Gross margins were ahead of expectations driven by our customer and product mix, together with lower tariffs, expedite and inventory reserve charges. Q3 GAAP operating expenses were $393 million which was up 34% year-over-year and up 21% quarter-over-quarter.

On a non-GAAP basis, operating expenses were $278 million, up 29% year-over-year and up 16% quarter-over-quarter. Both GAAP and non-GAAP operating expenses were up quarter-over-quarter due to higher headcount-related expenses. Non-GAAP operating margin was -- for Q3 was 7.3% compared to 4.5% in Q2. Other income and expense for Q3 totaled a net expense of [ $3 million ], reflecting $49 million in interest and other income, offset by $64 million and interest expense related to convertible notes and the revolving credit facilities.

The tax provision for Q3 was $127 million on a GAAP basis and $156 million on a non-GAAP basis resulting in a GAAP tax rate of 20.8% and a non-GAAP tax rate of 21.1%. The Q3 GAAP diluted earnings per share was $0.72 and compared to guidance of at least 2% $0.52, and non-GAAP diluted EPS was $0.84 versus guidance of at least $0.60 due to higher gross margins. The GAAP fully diluted share count decreased sequentially from $694 million in Q2 to $692 million in while the non-GAAP share count was largely flat at $709 million in Q3 compared to Q2.

Cash flow used in operations for Q3 was $6.6 billion compared to $24 million used in the prior quarter. Operating cash flow was impacted by a reduction of $10 billion in accounts payable and by an increase in inventory of $581 million. These factors were only partially offset by higher net income and a reduction of $2.6 billion in accounts receivable.

The Q3 closing inventory was $11.1 billion, up from $10.6 billion in Q2. CapEx for Q3 totaled $80 million, resulting in negative free cash flow of $6.7 billion for the quarter. At quarter end, our cash position totaled $1.3 billion. Furthermore, $2.7 billion of accounts receivable collections expected in March were received in early April. Our bank and convertible note debt was $8.8 billion, resulting in a net debt position of $7.5 billion compared to a net debt position of $787 million in the prior quarter. In addition to using our existing U.S. revolving credit facility and nonrecourse AR sale facility, we set up and commenced usage of a $1.8 billion revolving credit facility to further support working capital requirements.

Turning to the balance sheet and working capital metrics. The cash conversion cycle increased from 54 days in Q2 and to 106 days in Q3. Days of inventory increased by 43 days to 106 days versus 63 days in the prior quarter. Days sales outstanding increased by 36% to 85 days versus 49 days in Q2, while days payables outstanding increased by 27 days to 85 days versus 58 days in Q2.

Now turning to the outlook for Q4 fiscal year '26, which ends June 30, 2026, we expect net sales in the range of $11 billion to $12.5 billion. We expect GAAP diluted net income per share of $0.53 to $0.67 and non-GAAP diluted net income per share of $0.65 to $0.79. We expect gross margins to be in the range of 8.2% to 8.4% based on expected customer mix. GAAP operating expenses are expected to be around $433 million which include approximately $114 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses.

The outlook for Q4 of fiscal year 2026 fully diluted GAAP earnings per share includes approximately $95 million in expected stock-based compensation expenses net of tax effects of $30 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to result in a net expense of approximately $36 million. The company's projections for Q4 fiscal year '26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 19.4%, a non-GAAP tax rate of 20.4% and a fully diluted share count of 695 million shares for GAAP and 712 million shares for non-GAAP. Capital expenditures for Q4 are expected to be in the range of $30 million to $50 million. For the full fiscal year 2026, we expect net sales to be in the range of $38.9 billion to $40.4 billion.

Michael, we're now ready for Q&A.

Great. Before we begin Q&A, I just like to remind everyone that the purpose of this call is to discuss our third quarter fiscal '26 financial results. As such, we ask that you focus your questions on the results we announced today. Thank you in advance. And Christa, let's begin.

[Operator Instructions]. And your first question comes from Ananda Baruah with Loop Capital.

And congrats on the progress with the gross margin. It's great to see that. Yes, a couple if I could. I guess the first one would be guess on some of the stuff that's been sort of a press release by you guys throughout sort of during the quarter. I guess, specifically, could you give us an update on the indictment. Any more insight any company employee involvement? Do you think you'll have to restate earnings. Are you -- back to file with your 10-Q things like that? And then I guess, part and parcel with that, on the Board investigation that you guys announced, if you could talk to the opportunity that, that could have to strengthen the organization sort of and what those opportunities might be, that would be awesome. And then I have a quick follow-up.

Okay. Thanks, Anand. So the company was surprised and disappointed to learn of the alleged diversion to China of certain of our products. As we've previously announced, we're taking this matter seriously. The alleged conduct would violate our export control policies and procedures, and we're fully cooperating with the U.S. government to address this situation.

In addition, our independent directors have retained an outside law firm, Munger, Tolles & Olson and a forensic firm, Alex Partners, to conduct an independent investigation into these events. The investigations are ongoing, and we can't give you any final information at this time. So based on what we know so far, though, that could change as the investigation progresses.

No one from the company, other than those named in the DOJ inditement was involved. As to your second question on restatement of earnings, based on everything we know at this moment and considering the independent investigation is ongoing, we do not believe we will need to restate. And lastly, on the 10-Q, again, the investigation is ongoing, and any filing will be subject to BDO review. But based on what we know at this moment, we are planning to file our 10-Q and are preparing accordingly. And I think your last comment about certainly, we will be taking to heart the results of the independent investigation and we will look at that as an opportunity to grow and strengthen.

And I guess my follow-up would be sort of dovetailing off of that, you guys are probably aware sort of One of the top questions on investors' mind is in to these sort of aforementioned dynamics, is there potential for customers to get a little skittish and move away to other server vendors, gen AI server vendors. So to the degree that you have any context that you could offer there, that would be greatly appreciated. And that's it for me.

Thank you for the question. Indeed, we are growing our customer base, like last few quarters last year. Now we have many more large customers and -- customer. And from our experience, work with customers, communicate with customers, most of the customers either feel pretty solid to continue our business and continue to grow together. So at this moment, I personally don't feel negative feeling.

Your next question comes from the line of Samik Chatterjee with JPMorgan.

This is MT on behalf of Samik Chatterjee. For my first one, I just wanted to ask in your last call, you mentioned DC BBS contributions to profits during first half of about 4%. Can you please update how did it track during the quarter? And how much of a driver was that relative to gross margin improvement that you saw during the quarter? And I have a follow-up.

Yes, very good question. Yes, our DC BBS indeed continue to gain more and more attraction from our old customers and new customers. So it's a very good value add to our hardware and also enhancing our relationship with the customer. So the customers who use our DC BBS continue to grow. And we believe this growth will continue strongly in next 2 years, I personally expect at least 20% of our net -- from DC BBS, including the management software.

Okay. And then for my follow-up, I just wanted to ask on capacity additions, which you've done during the quarter. Can you please help us quantify the revenue capacity that it helped to add for the company?

Yes. Also a very good question. Again, our capacity now is very huge, but we continue to grow our capacity because we like to make sure our sales -- for a new generation of data center need for the industry. For example, a much higher density in power and computing density and also in photonics technology and a new generation of Switch. So we are preparing all of that. And some of the new facility in the was paired with clean. So to make sure we are able to buy the ejective base deep cooling the best communication bandwidth and minimize the cloud consumption for the new generation data center needs. So although our capacity is very big, but we continue to build more clarity. Thank you.

Your next question comes from the line of Victor Kuo with Raymond James.

I just wanted to follow up on the first question that was asked. Does the investigation around the -- that may potentially impact your relationship with NVIDIA subsequently your allocation or supply of GPU and other components because I think that's another really frequent point of concern that we get from clients these days is how that impacts your relationship and whether or not that's the dynamic there has changed at all?

Our relationship with vendor have been very long time, right, including NVIDIA, AMD, NPL program. So at the least moment, we feel our partnership stay strong and even not stronger -- are strong as before, and we continue to work together for a lot of new projects. So we also share with our vendor is some a few employees individual case. So I hope there are no impact basically. David, do you want to add something to that?

Yes. I mean our understanding is that there has been no change in allocation.

Great. That's very helpful. And just a quick follow-up. The investments that you previously noted that you made in engineering support services. Have those mostly kind of peaked now? And is that contributing to the margin advent at this point?

I'm sorry, could you repeat that?

The investments that you've noted previously regarding Engineered Support Services, have those kind of peaked now at this point? Or I guess, where are we along progress on those investments? And how has that contributed to the margin dynamics going forward?

Yes. I mean, a very good question. Indeed, our service business including data center planning, designing or deploying the buildup services continue to grow. So we continue to grow that service team, consulting team and revenue continue to grow Yes, in this segment, the profit is much better than our average hardware for sure.

Yes. But I would say, in no ways has peaked to it's really -- we're just gaining traction.

Your next question comes from the line of Asiya Merchant with Citi.

If I could on just the supply constraints, there's been a lot of talk about CPU-based shortages. So just the guide that you're providing, are you constrained in any components here. And would there be a number if the supply issues were resolved, basically, were you constrained by supply. And then if I can squeeze in one more as well on the data center. Clearly, you're seeing traction here relative to where you were last quarter when it was just starting to kick through. Can you help us understand what kind of customers if you're seeing any change in the customers, whether it's from a vertical perspective or a geography perspective where you're seeing traction with these data center building block solutions.

Yes. Thank you. Yes, in terms of shortage, I believe it's a global common program. So in last 6 months, as you know, on the memory price grow so much double, cheaper, more than triple and CPU shortage, especially from Intel. And also in some GPU shortage, right? So we like other competitors, other system companies, yes, we suffer a lot from those shortage. And those shortages may continue for -- we don't know how long -- memory and SSD, but we have a very good relationship with our vendors. So we continue to work with them and try to gain more long-term so -- as to our customer base, yes, as we shared last time, we start to gain more minimum enterprise customer globally and neo cloud. So we add more large customers, and we add a lot of midsized and small size customers, and we will continue in this direction to support more.

Your next question comes from the line of Katherine Murphy with Goldman Sachs.

I was wondering if there was any onetime items that impacted gross margins in the quarter. And anything you could share there specifically to quantify? I think you mentioned tariffs, expedite fees and then inventory reserve charges, that would be helpful. And then I have follow-up.

Sure. So with the tariffs, as you know, were reduced by the Supreme Court. And there were some replacement tariffs that came in. So we are hopeful that tariffs will be down net on a net basis going forward. So whether I look at that as a temporary or ongoing thing is based on optimism. But the other thing regarding expedite fees, we had a very large deployment in our March quarter which -- I'm sorry, in our December quarter, which ended up incurring a lot of expedite charges. So we -- those did not recur in the March quarter.

So therefore, we expect that to be incrementally up going forward as to the supply constraints, as Charles mentioned, we're -- it was especially troublesome in the last 6 months. but we expect some challenge going forward, but not like we incurred over the last 6 months.

That was very helpful. And then in terms of just thinking about the revenue miss in the quarter being related to a delivery that was delayed because of customer readiness and that deal was contemplated in your prior guidance for a margin benefit that was modest quarter-over-quarter. Was that deal that slipped or was otherwise delayed drag on consolidated gross margins? And how should we think about the impact to margins as the revenue from that deal that's recognized in the coming quarters here?

Yes. So we think that some of the some of the large deals that we talked about in the past have been incrementally beneficial to Super Micro because of our reputation, the reputation that it brings for us in deploying large-scale installations to some of the best sites in the world. And so what we've noticed now is that we're -- as Charles mentioned, we're not only getting more -- larger engagements, which gives us a diversified customer base, but we're also getting better margins from those sales. And so we're actually we actually had more diversification this quarter, and we see that going into the current -- into the June quarter as well. So we think on a net basis, some of the strategic decisions that we made on large installations have been beneficial.

Your next question comes from the line of Ruplu Bhattacharya with Bank of America.

I've got 2. The first one is a clarification on revenues and gross margins. David, you mentioned that there was some shareholder revenue into future quarters. Can you help us quantify how much of that is coming back in, in December quarter versus how much would be in future quarters? And on the margin side, can you help us clarify how you're thinking about the margin decline from fiscal 3Q to fiscal 4Q. I think you guided 8.3% gross margin on higher $11.8 billion of revenue. So what are some of the factors impacting gross margins between fiscal 3Q and 4Q? And I have a follow-up.

Sure. So regarding the deferred revenue, it really comes down to when the customers are ready and when their data centers are -- so we're all optimistic that we can ship right away. But that sometimes depends on the customer readiness. So we have to wait and see if -- how much lands in the June quarter and how much lands in the September quarter. As to margins, the -- our margin mix is determined by which customers that we sell to and which products we sell. So that's really the biggest dynamic in affecting our margins. But what we -- so therefore, what we see is a good upward trend to that 8.2% to 8.4% range, but it will depend on which customers ultimately we sell to.

Got it. Can I ask a follow-up on working capital. In the past, when we've had GPU transitions, you had to spend some working capital and time and money as customers qualify these new racks. So I'm thinking as NVIDIA releases new GPUs and when the transition happens from the overall rack to new cyber rack. Do you -- how are you thinking about your working capital needs? And is there a chance that you might have to come to the capital markets again to raise capital for working capital. So just your -- on investments required as new GPUs and renew rag designs come out?

Yes. Very good question. Basically, we are diversifying our customer base and also improving our total value. Now we have more and more partnership that we not just build AI server not just storage, but we have customer deployment and build a whole data center with total solution. So indeed, our business will be more diversified and more kind of smooth slides in terms of revenue dynamic and also profit margin change. So in terms of those concerns, we are improving in a very positive direction now quarter-over-quarter basically.

Okay. And in terms of working capital, David, any thoughts there?

Yes. So Ruplu, what I would say is I always hope that we need to go back to the markets for more money...

Because we grow a lot. But if we grow more stably, [indiscernible], so it depends.

It depends on how fast our growth rate is Ruplu.

Yes, we try to double again revenue, then we may need some more have in terms of capital. But if we grow a little bit humble, then I believe we are pretty enough because now our business model is improving.

Your next question comes from the line of Nehal Chokshi with Northland Capital Markets.

And congratulations on the strong gross margin. Charles, you mentioned that over the next 2 years, targeting 20% the data center building box solution was 20%. Was that gross profit? Or was that revenue?

Profit.

Got it. Okay. Very good. And can remember David or Charles, you gave a percentage or a dollar number of DC BBS in the quarter to quarter ago period, can you just read that again quickly?

We didn't give that percentage out, Nehal. But our gross margin did increase on our data center sales, but I don't have the percentage of our gross profit that, that reposted.

Yes. When the DC BBS percentage continue to grow, we remain quickly provide that kind of percentage change.

Okay. And so thinking about the significant improvement in gross margin, would you bucket that more towards DC BBS ramp or more towards a reduction in your 10% customer going from 63% to 27% in that -- from the December to March quarter?

Yes. I guess there are 2 factors. We will continue to improve our gross margin. One is DC BBS solution. With that segment, our profit margin did most of our time more than 20%. And the other segment is enterprise customer focus we start to grow minimal enterprise customer, and we will continue that direction. So that will improve our gross margin and net margin as well.

Okay. And then included in the guidance is the expectation that this customer does 27% of revenue in the current quarter will continue to be a 10-plus percent customer.

Yes, we will have a minimal new cloud kind of mid-sized cloud customers and -- side customers. And for sure, we will continue to support our large cloud customers as well, but more new cloud, small cloud enterprise cloud. So overall, our margin will continue to improve.

Your next question comes from the -- Quinn Bolton with Needham & Company.

This is Neil Young on for Quinn Bolton. So I was hoping you could touch on maybe what to you did a little bit, but maybe touch on what drove the strong over quarter increase in enterprise -- and then are you expecting to see healthy growth from enterprise again during the next quarter and through fiscal year '27? Or should we think about the revenue split by channel more closely reflected in 2Q? And then I have a follow-up.

Yes. We don't provide the detail, but the direction is there very strongly. I mean, improve minimal enterprise customers, and we see a lot of customers really like to work with us. And then at the same time, DC BBS have us to engage with more and more new cloud and enterprise AI data center customer. So long term, we feel pretty comfortable in this direction.

Okay. That's helpful. And then just wanted to go back to gross margin one last time. Can you help us think about sort of what level is sustainable as we do look into fiscal year '27 as -- it seems like large AI deployments will most likely trend towards being a bigger mix of revenue in the coming quarters.

Yes. We believe we will continue to grow in a very healthy way because we are growing customer base, we are growing product line. We are growing total solutions, including software and service -- so we are getting to a much mature much high-value partner to the market.

Your next question comes from the line of John Tanwanteng with CJS Securities.

Really nice quarter. I was wondering if you could just address a little bit more on the export violation issue and if that might impact your ability to finance growth or the cost of finance growth going forward? And I don't know if you talked about the cost of remediation or addressing the violations, presenting them from happening again. But if you could help disclose that, that would be helpful as well.

Yes, John, I think I'll go back to the comments that I made earlier that we -- the company was not named in this. And so therefore, we take these things very seriously. But we -- and we're conducting our own internal investigation, as you know, and I don't want to add any more to that.

And also kind of based on what we know so far. -- though that could be actually as the investigation business, no one from the company other than those names in the -- environment was involved. So we have a very good confidence with our integrity.

Perfect. And then I have a follow-up, if I could. You mentioned record backlog and strong orders. And I was wondering what that indicates heading into the back half of this calendar year. just from a growth perspective, number one, and number two, if the supply environment can support growth over the first half.

Yes. Basically, we are a fast-growing company, as you know. So we can grow much faster, we accept lower margin business. So we try to be balanced in between the growth and the gross margin and net margin. So basically, we are in good shape. I would like to say, we can control and decide the ratio of the balance.

Your final question comes from the line of Mark Newman with Bernstein.

Congrats on the gross margin. On the gross margin and the mix, it sounds like that's the gross margin rebound driven partly by some of these which expedition charges reducing, but also it sounds like if I get it right, the enterprise mix is also helping. I wanted to ask just to clarify if that's right. And within enterprise, is that AI server? Or is this more a traditional server. I have another question also on the revenue as well.

Indeed, both. Kind of for AI, enterprise, I mean a lot of genetic AI kind of inflating application. So we see a very strong plan there. And for traditional server and storage, even IoT, we also start to greatly support and expand this market, and we see a very good progress. So we'll continue overall enterprise business.

Okay. Great. And then on the revenue, it sounds like the reason for the slightly light revenue was this 63% customer last quarter. now pushed out a little bit, which is, I believe, the 27% customer. As that customer comes back, presumably at that customer rebounds a little bit because of some of that revenue being pushed out is not going to be a bit of a drag down on the margins in the coming quarters? And sorry, just one more quick question. You mentioned record backlog. Any clarity on that? I didn't hear any actual number on what the backlog is and how that's changed over time.

Yes. So we don't give out our backlog number. So the -- we just make general comments about the fact that it's very strong. But we are -- as I mentioned earlier, we've diversified our pipeline extensively. And so we have -- as Charles mentioned, we have a number of large deals from new neo clouds and cloud service providers, which we are expecting to increase both our footprint, our customer diversity as well as our margins, along with our DC BBS and enterprise expansion.

Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you all for your participation, and you may now disconnect.

Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Q2 Fiscal Year '26 Financial Results 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. [Operator Instructions] Over to you, Michael.

Thank you. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the second quarter and full year fiscal 2026, which ended December 31, 2025. With me today, as you know, is Charles Liang, Founder, Chairman, Chief Executive Officer; and David Weigand, Chief Financial Officer.

By now, you should have received a copy of the press 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 IR section of the company's website under Events and Presentations tab. We've also published management scripted commentary on our website.

Please note that some of the information you'll hear during the 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 third quarter of fiscal 2026 and full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2025 and other SEC filings.

All these documents are available on the IR 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 accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding the companies management -- management evaluates the company's operating performance.

These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. 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 will have a Q&A session for sell-side analysts. Our third quarter fiscal 2026 quiet period ends at the close -- or begins at the close of business Friday, March 13, 2026.

And for now, I will turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. Super Micro delivered a strong fiscal Q2 as AI infrastructure demand continues to accelerate across every major customer segment. For the quarter, we achieved a record TWD $12.68 billion in revenue, including $1.5 billion before the former type of account last quarter, representing 123% year-over-year growth. This strong performance reflects the sustained momentum of our AI solutions and Rack Scale Systems as customers build out next-generation AI factories.

Super Micro has been developing some of the largest and most complex AI cluster ever built, highlighting our unmatched capability in large-scale manufacturing on-site deployment and integration. Most notably, our data center building block solution or DCBBS has started to gain some key customers' preference as they look for quicker time-to-deployment, TTD and quicker time-to-online TTO. This predesign, prevalidate infrastructure building blocks, not only speed up customers' data center builds, but they also save cost with better workload optimization and with minimal power and water consumption.

DCBBS will significantly help us gain market share in large, medium and small AI infrastructure deployments. With GP300 [indiscernible] platforms, we are also preparing for upcoming NVIDIA, Vera Rubin and AMD Helios solutions for the second half this year. While we continuously growing AI factory build-out customer and product mix are shifting -- shift more to large model builder who had pricing leverage pressuring gross margin. In Q2, especially the expedite transportation costs ongoing component shortage and their volatile pricing among with tariffs and impact our short-term gross margin.

As such, I would like to take a moment to highlight our key strategies to address this and efficiently strengthen our long-term profitability. First and foremost, Super Micro undergoes its fourth phase of product evolution with DCBBS as its key focus. As these data center [ deploy ] scale, DCBBS is and will become an increasingly important part of our value. In the first half of fiscal year '26, DCBBS solutions accounted for 4% of our profit. We expect this part of our profit to grow and meaningfully contribute to the second half of fiscal '26, and we see that growth accelerate to at least double-digit contribution by end of calendar 2026 [indiscernible] GPU, CPU life cycle. DCBBS becomes critical helpful to the value of our server and storage products by enhancing the data center infrastructure time to delivery and time to online, reducing power and water consumption and cost efficiently simplifying data center management and maintenance.

In just about 1 year, our DCBBS product lines grew from more than -- grew to more than 10 key subsystems, including CDU, [ LR2A ] heat exchanger, chilled doors, power shelves, battery backup, water tower, dry-towers, high-speed switching, data center management software and service. We are expanding this product line to include more new category such as transformer, next-generation power generators, device for energy backup and grid power replacement, further strengthening customer value, accelerating deployment and supporting long-term profit margin improving for Super Micro.

Other than developing DCBBS for better value and portability, we are also sharpening our focus on traditional enterprise, cloud and edge IoT customers to further diversify revenue with higher margin. In addition, we have introduced our X14 and H14 [indiscernible] solutions, featuring preconfigured systems that ship directly from our factory, enabling rapid deployment, optimized for specific AI cloud storage and telco edge workloads. These servers are ready to power immediately and reinforce Super Micro's core value time-to-market advantage for enterprise customer, channel partner and SMB end users.

We are also driving meaningful cost improvement through enhanced design for manufacturing, DFM and quality-driven engineering. We have introduced more modularized subsystem and expanded automation across our facilities. These efforts increase yield rate, reduce the work and enable us to bring new platform to volume production even faster and with higher quality. As product cycle shorten and technical complexity increase, these design for manufacturing advancement are essential for scale, efficiency and long-term margin improvement.

While executing these DFM initiatives, we are also continuing to expand our global manufacturing footprint aggressively and strategically. Our Silicon Valley facility remains the cornerstone of our U.S. operation, delivering faster time to market, strong security and higher quality integration. Internationally, new production site in Taiwan, Malaysia and Netherlands and so the Middle East are ramping to increase capacity support regional solving AI requirement and most importantly, optimize our overall cost structure.

In summary, as the only company with more than 32 years of robust server and storage focus, Super Micro is quickly evolving into a leading AI platform and data center infrastructure total solution provider. Strong Q2 performance, rapid expansion of DCBBS product line, deeper and more customer engagement and the global capacity investment position us well for long-term growth, while near-term margin pressure from customer mix, tariff, international facility expansion and key component shortage like memory and storage shortage. Our focus on enterprise business design for manufacturing improvement and the faster-growing DCBBS portfolio all help us gain new customers, support higher growth and net margin going forward.

Lastly, based on our broad customer back order forecast and commitment, we believe demand for AI and IT infrastructure remain unprecedentedly strong. Our DCBBS solution is exactly what customers need to build out their AI and cloud much faster, greener and lower total cost. With that in mind, I'm confident to guide at least $12.3 billion for Q3 and up our full year revenue guidance back to at least $40 billion. I look forward to sharing our progress with you next quarter. Thank you. Now I will turn it over to David.

Thank you, Charles. We achieved record Q2 fiscal year '26 revenue of $12.7 billion, up 123% year-over-year and up 153% quarter-over-quarter compared to our guidance of $10 billion to $11 billion. Q2 revenue included approximately $1.5 billion in delayed Q1 shipments due to customer readiness. Growth was driven this quarter by the rapid ramp and deployment of our Rack Scale AI solutions. Despite supply chain challenges in the industry, our global manufacturing team executed well in delivering record revenue. Order strength remains strong from global large data center and enterprise customers. AI GPU platforms, which represent over 90% of Q2 revenue continue to be the key growth driver.

During Q2, the enterprise channel revenue segment totaled $2 billion, representing about 16% of revenue versus 31% in the prior quarter. That's up 42% year-over-year and up 29% quarter-over-quarter. The OEM appliance and large data center segment revenue was $10.7 billion, representing approximately 84% of Q2 revenue versus 68% in the last quarter. This was up 151% year-over-year and up 210% quarter-over-quarter. For Q2 FY '26, one large data center customer represented approximately 63% of total revenue.

By geography, the U.S. represented 86% of Q2 revenue, Asia 9%; Europe, 3%; and the rest of the world, 2%. On a year-over-year basis, U.S. revenue increased 184%. Asia grew 53%, Europe decreased 63% and the rest of the world increased 77%. On a quarter-over-quarter basis, U.S. revenue increased 496%, Asia decreased 49%, Europe decreased 51% and the rest of the world increased 53%. The Q2 non-GAAP gross margin was 6.4% versus 9.5% in Q1. Gross margins were impacted by customer and product mix as well as higher freight, production and expedite costs as we began to ship new platforms on a large scale.

We had significant operating leverage during the quarter with total non-GAAP operating expenses representing 1.9% of revenue versus 4.1% last quarter. Q2 GAAP operating expenses were $324 million, up 14% quarter-over-quarter and up 8% year-over-year. On a non-GAAP basis, operating expenses were $241 million, which was up 18% quarter-over-quarter and up 6% year-over-year. Operating expenses were up quarter-over-quarter, largely due to higher sales expenses. Non-GAAP operating margin for Q2 was 4.5% compared to 5.4% in Q1. Other income and expense for Q2 totaled a net income of $26 million, reflecting $51 million in interest income on higher cash balances, partially offset by $25 million in interest expense primarily related to our convertible notes.

The tax provision for Q2 was $99 million on a GAAP basis and $122 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.8% and a non-GAAP tax rate of 20.6%. Q2 GAAP EPS was $0.60 compared to guidance of $0.37 to $0.45 and non-GAAP diluted EPS was $0.69 versus guidance of $0.46 to $0.54 due to higher revenue and operating leverage. The GAAP fully diluted share count increased sequentially from 663 million in Q1 to 673 million in Q2, and the non-GAAP share count increased from 677 million to [ 688 ] million over the same period.

Cash flow used in operations for Q2 was $24 million compared to $918 million used in the prior quarter. On a quarter-over-quarter basis, Q2 operating cash flow reflected higher net income, offset by higher accounts receivable and inventory levels and aided by higher accounts payables. Q2 closing inventory was $10.6 billion, up from $5.7 billion in Q1 as we prepared for continuing strength in Q3 shipments. CapEx for Q2 totaled $21 million, resulting in negative free cash flow of $45 million for the quarter. During the December quarter, we expanded our access to working capital to fund growth, executing a $2 billion cash flow-based secured revolving credit facility in the U.S. In January, we also closed an approximately $1.8 billion secured Taiwan revolving debt facility. At quarter end, our cash position totaled $4.1 billion, while bank and convertible note debt was $4.9 billion, resulting in a net debt position of $787 million compared to a net debt position of $579 million in the prior quarter.

Turning to the balance sheet and working capital metrics. The cash conversion cycle significantly improved from 123 days in Q1 to 54 days in Q2. Days of inventory decreased by 42 days to 63 days versus 105 days in the prior quarter. Days sales outstanding increased by 6 days to 49 days versus 43 days in Q1, while days payables outstanding increased by 32 days to 58 days versus 26 days in Q1.

Turning to the outlook for Q3 FY '26. We expect net sales to be at least $12.3 billion. GAAP diluted net income per share of at least $0.52 and non-GAAP diluted net income per share of at least $0.60. We expect gross margins to be up 30 basis points relative to Q2 FY '26 levels. GAAP operating expenses are expected to be around $354 million, which include approximately $74 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q3 of fiscal year 2026 fully diluted GAAP EPS includes approximately $62 million in expected stock-based compensation expenses, net of the tax effects of $19 million, which are excluded from non-GAAP diluted net income per common share.

We expect other income and expenses, including interest expense to result in a net expense of approximately $22 million. The company's projections for Q3 FY '26 GAAP and non-GAAP diluted net income per common share assume a tax rate of 19.6%, a non-GAAP tax rate of 20.2% and a fully diluted share count of 684 million for GAAP and 699 million shares for non-GAAP. Capital expenditures for Q3 are expected to be in the range of $70 million to $90 million. For full fiscal year 2026, we expect at least $40 billion in net sales. Michael, we're now ready for Q&A.

Great. Matthew, can you roll the queue?

[Operator Instructions] First question is from the line of Ananda Baruah with Loop Capital.

Yes, congrats on the solid results here relative to the guide. Just -- I want to just ask about margins. And I have a few day questions they want to ask you here, but they're all margin related. I guess the first is with regards to -- you mentioned, I think, 90 days ago that December quarter, you expect it to be the sort of the low watermark quarter in gross margins, and you're guiding for Q-over-Q improvement for the March quarter. Do you still think that things progress expansive from here, Charles, you made some comments around customer mix. It's been a headwind. Do you think it continues to improve? And I have 2 quick follow-ups, Dave, just margin related after that.

Yes. Thank you for the question. Yes, the customer mix, we are improving quarter after quarter. Now we have many more large-scale customer, I would like to say. So that will improve our profitability. The other factor is -- last quarter, I mean, December quarter, the GP300 was a little bit new to us. So a lot of expedite transportation cost.

And now, I mean, product is getting mature. So those expedite transportation costs will be dramatically reduced and tariff impact also improving. And -- so overall, especially DCBBS also increasing for our -- for our gross margin. So I believe our gross margin will start to improve quarter after quarter.

Charles, that's great context. Really appreciate it. And actually, Charles, one of my 2 clarifications here is from something you said in your prepared remarks, you said higher net margin. And so I guess you just clarified you expect gross margin to go up. Maybe this is a Charles or Dave question. Dave, you mentioned OpEx leverage. The OpEx as a percentage of sales was really attractive this quarter. It's like 1.5% -- I guess, less than 2%. But should we expect -- I think it's the second quarter in a row, you drove OpEx leverage last quarter, this September quarter for the first time in a while.

But now you have this really attractive -- the most attractive OpEx as a percentage of revenue in a while. So are you -- is the company entering a period of not only gross margin expansion, but OpEx dollar leverage as well structurally? And that's it for me guys.

Yes, exactly. I mean economical scale will help us to improve the cost -- our cost, right? So that will impact our gross margin and especially our operation margin. And again, DCBBS [indiscernible] Super Micro for more business in service, in software, in overall infrastructure service to customer. So all those factors are positive to our margin improvement.

Next question is from the line of Samik Chatterjee with JPMorgan.

This is MP on behalf of Samik Chatterjee. I just wanted to double-click on your full year guidance. You said $40 billion for FY '26. If I back into the implied 4Q number, that implies significant quarter-over-quarter moderation. So is that just conservatism being embedded into the full year outlook? Or like do you see definite indications from your order trends that 4Q will imply sequential moderation? And I have a follow-up as well.

Yes. I believe we say minimum $40 billion is a relatively conservative number. So our business indeed will continue to grow, especially our DCBBS that attract a lot of customers who want to build a data center quicker, less power consumption, less cost -- I mean, better cost and also more reliable and easy for management. So we are getting more and more customers come to us.

And for my follow-up, I wanted to ask about DCBBS. You highlighted it being 4% of profits in first half. Can you please help us understand like the contribution in terms of revenues? And then you also said it will increase to double-digit contribution by end of calendar year. So how does that translate to overall gross margin trajectory?

Yes. Thank you. I mean, as you know, DCBBS is still a new product line to us. We officially introduced that product about 6 months ago. So in the first 2 quarters, I mean, September quarter plus December quarter, indeed, it is our first 2 quarters. So the revenue is still relatively small, but because the profit is much better. So overall, it contributed about 4% to our overall profit in last 6 months. And looking forward, it will continue to grow very quickly. So we are very happy to see more and more customers like DCBBS to speed up their data center build-out with EDR for management, EDL for maintenance and our profit will continue to grow because of DCBBS especially.

Next question is from the line of Asiya Merchant with Citi.

Good results here relative to the guide. I just had 2 quick ones. One, just there's a lot of discussion about component availability, supply constraints. If you could just talk to us about your guide and relative to that, is that minimum $40 billion guide a constraining number -- given the supply constraints? In other words, if supply wasn't an issue, could that number be greater? And then just on customer concentration, I think the commentary suggested that some of the geos did decline on a year-on-year basis as well as on a quarter-on-quarter basis.

So again, relative to the guide, how should we think about the ramp of DCBBS across those various geographies for the back half of this fiscal year and into -- through calendar '26?

Yes, you are right. We already consider component price keeping growing. So with that, that's why we try to be conservative kind of commit to $40 billion. If the cost -- if the shortage situation improve quickly, for sure, our [indiscernible] revenue will be more than that. And as to DCBBS is globally almost every region, customer like DCBBS because it helps them easier to build a data center. It's kind of like a one-stop shop. We provide not just computing node, I mean storage node, switch node and disk cooling subsystem including battery cell, including some energy backup. So it kind of makes customers' job to build a data center much easier. So the impact is global. We see global-wide more and more customers like our DCBBS solution, and we are aggressively preparing to grow the support.

Next question is from the line of Katherine Murphy with Goldman Sachs.

To ask another question on the new DCBBS disclosure. Encouraging to hear that growing to double-digit share of profit by the end of calendar '26. Can you talk about the investments that you need to make here to expand the capabilities? I know Charles, you mentioned some in the prepared remarks as well as your go-to-market offering to have this increased penetration of DCBBS? And then I have a quick follow-up as well.

Yes. Indeed, we started to develop our DCBBS pretty much about 12 months ago. So we already consistently invested in that area. And so far, we have about 10 items, including the CDU, including chilled door, including the power shelf, battery backup, water tower, management software. So we have about 10 items available now, and we will introduce another 3 to 5 items in the next few months or next few quarters.

So the data center building block solution will be getting more complete, and that's why it will be easier for customers to build a data center. It's not just easier, quicker to build their data center, but also make their data center modularized. So it's easier for management, easier for maintenance and easier for scale up.

Great. And just on the margin profile of DCBBS, could you remind us what you've said in the past about what that looks like relative to the sales that you typically have towards your large Neo cloud and GPU as a Service customers?

It's for sure, gross margin -- net margin are much higher for DCBBS because it's so unique. And again, we are the first company to build predesigned, prevalidated, pre-optimized data center solution for customers. So the margin is much better, for sure, more than 20%. And we are happy to make the product line really strong, really complete as soon as possible.

The next question is from the line of Ruplu Bhattacharya with Bank of America.

For the first one, I'll ask a follow-up on margins. David, you mentioned expedite costs, component cost increases, shortages. And I think last quarter, you talked about increased investments in engineering support and services to help new customers. Can you help us size all of these things? How much did they impact gross margins in the December quarter? And what's baked into guidance as impact from these things in the March quarter? And I have a follow-up.

Yes. We don't break those things out, Ruplu, but we can just say that the costs were up in each of those areas. So in other words, higher transportation and expedite in order to move things around and get things delivered to the customer faster. But we have -- I can tell you that over the past year, we've had increases as we have ramped up the new technologies and prepared for mass shipments.

Okay. As a follow-up, can I ask, I think -- or Charles talked about component shortages and you're being a little conservative on the guide. Are component shortages, like which areas are they in? And then component cost increases, are they actually impacting data center demand, either on the AI side or on the regular non-GPU server side? A component cost increases a real factor?

And if I can sneak one more in, this DCBBS product that you have, can we infer anything about the type of customers who are buying that? Like if you're thinking that you're going to sell more, it's going to be more -- a bigger percent of your sales. Does that mean that the customer mix is also changing? Do enterprise customers use more of these? Or what type of customer likes to use more of the DCBBS packaged solution?

Thank you for your question. Indeed, the key component shortage at this time is the main reason because the AI and the large data center demand are growing. So the shortage because the demand is getting so strong, not because of production capacity is reduced. So that's a good sign. So basically, it's because the industry are growing, and we are part of the major growing company. So that's why I believe the impact to us, yes, the cost will be impact, but won't hurt us too much. That's first question.

And second, I mean, DCBBS, who need the DCBBS, I would like to say all the people like to build a data center. Doesn't matter they are large scale, middle-sized scale or small scale because our DCBBS just simply provide more choice for customers to go for one-stop shop or buy everything from everywhere by themselves. And obviously, one-stop shop save their time, make sure when they put the things together, it works. And quickly, when you put things together, it work and optimize. That's why it's optimized not just time to delivery, but time to online. Customers use our DCBBS, their data center can go for online, go for operation quickly. So I would like to say global people need DCBBS kind of building block solution.

The next question is from the line of Nehal Chokshi with Northland.

Congrats on the strong results and guidance. A little bit of different question here. So look, Super Micro brought DLC to the market one generation faster than when it became part of NVIDIA reference architecture. It's now apparent that Super Micro has brought to the market one generation faster, dry cooling towers, which is related to higher inlet temperatures as part of Blueprint reference design. My question is that do you expect Super Micro to continue to bring to the market one generation faster the power efficiency advantages before NVIDIA makes it part of their reference architecture? Is it going to be part of Super Micro's branding?

Yes. As you know, NVIDIA is a very strong company, and we work with them very closely. And, however, because of our strong engineering background, our big engineering team. So before we are able to make our total solution one generation or 6 months earlier than others. Now and in the future, I believe we will be still able to bring a total solution to market earlier than others, especially help customers build a data center, build their cloud -- AI cloud, time to online quicker than others, if not 6 months earlier, at least 3 months or 4 months earlier. And that's still a big help. So I'm very confident that our future growth should be still very strong.

Great. And then for my follow-up question, your 10% customer, -- was that the primary driver of the upside that you saw in the quarter? Do you expect them to remain a 10-plus percent customer in the March quarter? How should they traject? And then you also did sign Datavault, a pretty big contract with Datavault 6 or 9 months ago. Is that starting to ramp in as well?

Basically, because our foundation is getting much stronger than before ever, especially our kind of total solution, data center building block total solution is strong. So we are gaining broadly good customer from the older territory. So more than 10% or not is hard to say because now our revenue will grow very fast. Very soon, I hope I can say we have more than $50 billion or $60 billion revenue, not to pay, but hopefully very soon. So more and more large customer is working with us. So that's a very exciting condition.

Next question is from the line of Quinn Bolton with Needham & Company.

Let me add congratulations on the nice outlook. I guess, Charles, David, you had a 63% customer in the December quarter. As you look at sort of the second half of fiscal '26, do you expect revenue to diversify significantly? Or do you think that, that large customer continues to be pretty concentrated in the March and the June quarters? And then I've got a follow-up.

Sometimes it's not easy to predict because customers sometimes shift their schedule of pull in or push out. So -- but overall, we are very happy that now we have many more large-scale customers. So the customer is more diversified and overall revenue will grow quickly. And at the same time, DCBBS and [ software ] grow our value. So overall, we are on a very healthy track now.

Got it. So understanding that the customers can push and pull out, right now, the forecast shows increasing diversification over the next couple of quarters.

Yes. I mean because of growth still very fast, that's why now we are focused on more about how to kind of maybe -- what should I say, kind of how to grab more money to grow even faster, right? So if we have more cash for sure we can grow even faster. But even if we do not grab more money, I guess, because of more diversified customer base and also more higher-value system, more higher value to solution. So that will help us grow business.

Understood. And my follow-on, Charles, in your prepared comments, you mentioned the upcoming platform transition to Vera Rubin and the Helios system from AMD. I'm just wondering, have you guys started to get orders for those systems for delivery in the second half? Or is it too early to start to get orders for those systems?

Yes, we have a lot of highly interested customers, some already engaged, and we hope we can deliver as soon as possible. But still, it depends on our partner, depends on when their Vera Rubin or AMD solution will be ready. So we are working very closely with them. Once they are available, we like to deliver to customers quickly. And yes, today, we already have some good commitment from customers.

Next question is from the line of John Tanwanteng with CJS Securities.

Congrats on the nice quarter and outlook there. I just wanted to ask a little bit more about the big versus smaller customer mix that you're expecting in the future and the pipeline that you see. Are you expecting smaller customers to become a greater percentage of sales? Or is it the opposite? And the reason I ask that is because these bigger customers seem to have that pricing leverage you mentioned. If you could have any color there, that would be helpful.

Yes. Thank you for the question. Yes, we understand we need more customer, especially a more diversified customer base, enterprise. So we are very aggressively growing enterprise midsized or even kind of enterprise customers as well. So I mean, our customer diversified is a very important direction to us now. So I guess [indiscernible] large customer and lots of kind of high number of enterprise accounts.

Okay. Got it. And then just on the Vera Rubin question, and I guess the migration to the 800-volt data center. I was wondering if there's any opportunity for you to drive greater differentiation in this next cycle upgrade compared to the past couple. Is there anything about the whole platform and data center architecture that gives you more or less opportunity compared to the last cycle of Blackwell and Hopper?

Yes. I mean that's why I say NVIDIA provides a very good solution. And based on that, we optimize the whole data center building block solution for our customers and aim to help them build the data center quicker and more reliable, easy for management and [ lower cost ] including energy consumption, including energy backup and maybe too early to say, including energy kind of grid power replacement. So we have a complete plan for the whole solution, but some other systems are still too early to say too much at this moment.

Next question is from the line of Mark Newman with Bernstein.

Congrats on a great quarter and great outlook. Just curious, if you just take a step back, I mean, what's changed? You've got a big step-up here in sales, gross margins down quite a lot, but you're guiding forward for solid sales to continue. So is this just a reflection of a tougher pricing environment and Super Micro having to react to tougher pricing environment and thus winning back more share? Or is this just catching up to -- as you referred to the previous quarter -- previous couple of quarters, you mentioned about a few orders getting pushed out. So is this just catch-up of the orders? Or is this a reflection of a more aggressive pricing strategy?

And I guess, importantly, for me, like trying to think about forward estimates going forward, I mean you guided for the short term, but how do we think about gross margins longer term? Is this -- this kind of range here to stay? Or are we looking at getting back to -- into the high single-digit, low double-digit range gross margin like you were before?

Thank you. As an engineering company, we, for sure, have some choice. We can continue to grow larger account aggressively or spend more effort to develop technology, the product and to grow more enterprise account. So we are doing both ways basically. And -- so the gross margin -- net margin ratio, we are expecting to grow to a double digit as soon as possible. David, you may add something.

Sure. We think that we've established ourselves with a number of deployments that we've made as being really the premier provider of the most current technologies that are available in the market. And we think with those strong installations, we've broadened our reach into the market. And so we think that we're trying to target both, as Charles mentioned, both large-scale and smaller scale customers and mid-tier customers. But we want to serve all the customer bases that are out there and that are attracted to our products with -- and bring them the very best technologies. We think ultimately, that drives the margins, yes.

The next question is from the line of Brandon Nispel with KeyCorp.

Just I think a couple of quick clarification questions. One for David. David, you raised some new capital this quarter. Maybe just help us understand how you're thinking about working capital for the rest of this year. And then other income came in about $50 million above your guide. Really what drove that? And then just one quick follow-up question.

Sure. The other income was just -- was higher interest income that we had because our cash reserves had grown. And so we were earning good interest income. However, that was quickly taken up by the fact that, as I mentioned last quarter, we had well in excess of $13 billion of orders for purchase orders for delivery. And so we immediately had to use that. That's why our accounts receivable, our inventory went up. And so we took in not only 2 different $2 billion or $2 billion and $1.8 billion credit facilities. We also set up an accounts receivable factoring. So we have access to over $5 billion of additional capital. And if we continue to have growth, then -- we have access to additional capital in the marketplace. But right now, we think that for the current outlook, we have adequate capital to meet our needs. And when I say current, I mean [indiscernible] the coming quarters.

Got it. Just on the factoring, the securitization facility, did you utilize that at all this quarter? And then on the 63% customer, was that a previous 10% customer?

So to the first question, we did not use it during the December quarter, but we have subsequently. To your second question, Super Micro has -- does most of its business with repeat customers. So I'll just leave it at that.

But at the same time, we add a lot of...

We've added a lot of new logos at the same time. That's right. And it's because of those successful customers.

Okay. But we don't know if the 63% customer is new to the 10% customer mix or if it's a previous 10% customer. Is that right?

Yes. I'll just refer you to the 10-Ks and Qs on that. Yes. By the way, I do want to clarify one thing in my narrative regarding the fully diluted share count. So the GAAP fully diluted share count increased sequentially from 663 million to 694 million shares. So -- and then the non-GAAP share count increased from 677 million to 709 million. So there was just a -- I noticed a typo on there. So please forgive the correction.

All right. Thank you, everyone, for joining. I just want to just inform you that we had heard there were some technical difficulties with the webcast provider. A replay will be provided after the call, so you can catch up on that. Thank you for joining today.

That concludes the conference call. Thank you for your participation. You may now disconnect.

Hi, everybody. Thank you for joining. Tim Long here, Barclays IT hardware and comm equipment analyst. Happy to have Super Micro, Michael with us today. I appreciate the time. I know it's a pretty busy one. You go through the safe harbor, you're good.

Oh, yes. I forgot about that. Please refer to our safe harbor statements on our website for -- regarding forward-looking statements.

[indiscernible] memory. You need..

shortener version [indiscernible].

Okay. Great. All right. We've got some stuff to go through here. Maybe we'll just hit on kind of the hot investor questions that we're getting. Maybe let's just recap. Obviously, last quarter, you had some pushouts and maybe just walk us through kind of what caused it and how you read into that as we look forward into future deployments?

Yes. So from that perspective, I think if you look at what's going on in the end markets, in the industry, there's a lot of dynamicism happening and we had some configuration changes that delayed some shipments. Obviously, we're -- I would say, obviously, we're through that. We talked about the December quarter at the time when $13 billion in orders for GB300, which is a pretty massive number, and we moved the needle on the guidance to from $33 billion to $36 billion. So visibility, demand all look really good. I think we've seen some evidence recently of others in the spectrum talking about increased CapEx. So that environment is cooking right now.

Okay. And then just talk a little bit about these configuration changes. They've happen before, not just the Super Micro to others in the industry. It just seems there's a lot more complexity. So at the end of the day, does this -- do these type of dynamics, obviously, it's a pushout, not great in the near term. But is this dynamic of things getting more complicated, a positive for Super Micro? How do you view it?

So we view it -- there are some folks that talked about standardization and what we're seeing from an end customer perspective is that everyone has some degree of differentiation or complexity. So if you think about what we're trying to do, not every customer is going to run a GB300, not every customer is going to run Vera Rubin in the future. There's multiple verticals and stacks that NVIDIA is trying to support. They're similar with AMD, similar with the ASIC, the ASIC debate, and there's multiple players there. You have Intel's in the mix and you have ARM in the mix. And so what we're trying to do is support an application optimization for our customer base. And it's big and broad, and the market opportunity is large. And so where we're going as we move forward is to support AI applications in mass where our competition might be just building one product for one solution. So we're doing that. And at the same time, we're solution setting around it in DCBBS. And it all goes down to the point of like complexity. And so future racks are going to look different than the traditional rack, right? There might be power side cards, et cetera. There's lots of things. Liquid cooling is a pretty big component. And so we're supplying all the componentry that surround that and the margin profile there has improved. So as we move forward, we'll be a full stack supplier for AI and other enabled application solutions. So it will make Super Micro look a lot different as we go out of several quarters, if not 1 or 2 years. And if you believe the $1 trillion market that some folks talk about or [ 3 or 4 ], and we're just 10% of the market where we kind of are today. It's a $100 billion opportunity that we'll get to serve as we move forward. And that's tremendous. And again, it's scale and then we're all in on building that for our customer base.

Okay. Great. maybe you mentioned the really positive orders in the revenue outlook. Just how do you -- how do we think about visibility? Obviously, this is a business where there's big chunky deals and something can change late. So how do we get comfort in kind of linearity? Or is it -- do we get to a point where the orders in the backlog book is so big that there's a little bit more flexibility to build to it?

Well, that would be great from a standpoint of visibility, I think we have very good visibility and we think that, that will ultimately come to play. So this gave us the confidence to go from $33 billion to $36 billion for fiscal '26, which is a June year-end for us. So I think we're -- our guidance practice here will reflect that as we move forward. So I think we can just articulate that more precisely as we move forward.

Okay. You mentioned the industry worries about standardization and gross margins, and you mentioned some of the things. If you just elaborate a little bit on what you think develops over the next few years that enables the Super Micro to maybe improve that gross margin percentage on these big AI type deals?

So in the short term, we have a couple of different levers, right? One, customer mix has had a pretty big influence. As you can imagine, there's been a few operators that have been building out and scale, give me as much as you can -- as soon as you can. So customer mix there and some of these customers are large and have buying power. You have product mix and then you have manufacturing efficiencies. And so as the customer base broadens out, and we talked about this in our last call, we said that for fiscal '26, we would anticipate adding 2 to 4 more scale customers on top of the 4 that we already have. we would grow to 4, and then we would add more scale customers. In Q1, we added a new scale customer and grew with significantly one of our larger customers. So we're tracking from that perspective. But as more and more customers come into the flow, there's an expansion in neocloud space, there's an expansion with respect to sovereign opportunities. As a customer base expands out, we believe that, one, they will be able to mix up with product. Two, they'll have less -- potentially less purchasing power. And three, as we lean in on the manufacturing efficiencies, we can deliver a better. We'll iron out some of the inefficiencies. And if you think about this quarter, December, at least [ 10.5% ] as a brand-new product in mass coming through to the factory. So there was a higher cost, as you well know, following hardware, any launch has overhead. And so this has just happened to be a lot of overhead because of the size and the quantum of this and which lends to the opportunity as we move forward, ironing that out, supporting a massive amount of differentiated product sets and adding on the DCBBS, that's building a whole new scale company as we move forward that will support. Again, we go back to the 10% of the $1 trillion, that's a big opportunity for Super Micro and there's margin opportunity and the operating structure is fairly lean as we do this. So we're moving fast to address a large opportunity, and we think we're advantaging ourselves across the board relative to our competition.

Okay. Yes, it does seem some of the -- your large competitors have seen stability in overall margins, and it seems much more predictable now than it was maybe a year ago. Would you agree with that or in general?

From our perspective [indiscernible] I would imagine that we've been -- the dynamics have been so intense that we've been guiding margins for a quarter at a time, right? Again, we've just basically have built a brand-new system at scale in one quarter that we didn't do the prior few quarters, right? So as we move forward and as things change, it's hard to predict where that will be. But the goal is to move the needle on that to the point where we're double-digit gross margins as we move forward. And that will come as a factor of, again, customer mix, product mix and manufacturing efficiencies. So all those things we're working hard on to move those needle on that as we build a bigger, better company.

Okay. Sounds good. You mentioned in their DCBBS, data center building block solutions. So I just got to make sure I got...

A lot of letters. It's a lot of letters.

Maybe just walk us through kind of what that is, how it's differentiated and what do you think that's going to mean to the company?

So complexity has been -- has grown in the data center, we've been moving forward with that, right? So if you look at the past, what we have always done is more performance in the rack, better power delivery, so to speak, or power savings, more performance, et cetera. So more packaging, more complexity. So this is moving beyond just the rack. And so we see our customers potentially needing more of the -- whether it's cabling services, whether it's the power element, whether it's liquid cooling element, all these things wrapped around. So we have -- I believe we're up to multiple dozens of SKUs to help enable a data center build for each unique customer opportunity. So we're trying to encapsulate as much of that for the customer as we move forward. There's battery backup. There's power shells. As you look at some of the newer rack and development, power side [ card ], their liquid the air cooling elements. So we're putting all those together, depending on what the customer is, what the customer need is. So building a business off of enabling data sets, including the service element to them. And storage and ultimately, switching will be a part of the complex for them in various different segments.

Okay. I mean it's still pretty early. Do you have any sense of customer feedback and what at your bigger customers that might be looking at this or liking about it?

so we've scoped out a few from that perspective, and we are already delivering to some of our customers, some of those cooling elements to help them lower their -- or increase their PUE, right? So there's some early signs of that moving forward. I think the next milestone markers will be when will enable a few of the sovereigns, and we have equipment POCs in many different locations around the world. As those expand because we think that the sovereigns are likely not to run in hyperscale environments, right? There'll be some segregation of workloads, those will have more requirement for our full stack, and we'll grow with them and that should be reflected in results in future quarters.

Okay. Great. Maybe if we could touch on capacity a little bit. It's an industry-wide topic for everyone in value chain. So I know you guys you're building and increasing your rack output. So maybe walk us through the time line there and what that's going to do for revenue opportunities?

So we have multiple locations, Silicon Valley, Taiwan, Malaysia and the Netherlands. And we're looking for more sites in Americas. And we've been expanding capacity. Currently, we're planning to exit fiscal '26 at 6,000 total racks, 3,000 of them will be liquid cooled. And from that perspective, we will be unlikely to be satisfied with those results, right? We've continually added capacity as we move forward. But if you take a look at what the liquid cool racks, ASP commands, it's a pretty big price tag. I'd say, it's a $3 million per rack kind of price tag. It gets you to a pretty ample revenue opportunity if you do the math. So we're cognizant of that. But we're also cognizant of making sure that these facilities are producing the most reliable and efficient systems for end customers. So our capacity plans are in line with what we think is the opportunity easily to be able to support the figures we talked about earlier.

Okay. And you mentioned the $1 trillion or $3 trillion or $4 trillion. So this is not the end. I'm assuming that it's [indiscernible].

Well, It's not the end, but at the same time, if you -- like the dynamic -- if the opportunity set continues to expand and again, it's tied to the application. We're all in San Francisco right now, and you see the Waymo's buzzing around this city, but if that becomes a nationwide thing, there's to be multiple vendors supplying autonomous driving vehicles, whether it's the transportation sector for trucking, et cetera, it's a huge opportunity, right? So naturally unit volume should expand, data center capacity should expand, right? So -- and our partners, whether it's NVIDIA or AMD or [ beyond ], are talking about very large market TAMs, and we're in support of all of those. And so those are the numbers that we're kind of benchmarking with you off of. And again, we're roughly 10% of the market right now. We have a much bigger share, I think, of AI equipment than that number. But if it continues in that path, we'll certainly need capacity to serve it. And then there'll be capacity requirements for the DCBBS element, right. That's where this non-rack that it's not liquid cooled. So we'll focus on both of those things. And the unit volumes, et cetera, we'll be able to support the end markets.

Okay. I wanted to take some time to talk about customers and concentration. And you mentioned typically having 2 to 4 scale customers and adding another 1 last quarter. How diverse and it sounds like you're going to add some more, how diversified do you see the business be coming if we look out a few years?

Well, this is an interesting question. You've been covering the space for quite some time. And if you think of the traditional data center enterprise business, right, which I think a lot of analysts are looking at it from that lens, if we're looking at it from the lens of application, application optimization and you think about the context of the hyperscalers and what they're doing, they have multiple different applications that they're delivering to their end customers that are running on different various forms of equipment that need a certain amount of support. They're starting to take workloads and put it into the neoclouds. And that's an amazing kind of element there. So we have a large footprint with the neoclouds and they're expanding. They're offering services. At the same time, they're getting services from the hyperscalers. Enterprises are testing out AI workloads in the neoclouds, whether or not they bring them in-house or not, remains to be seen. We do expect them to do that to control their own data. There will be enterprises that are data-centric that all want to support that as well. So you think of the famous application companies that could turn whatever their enterprise application is into an AI source. So we'll be able to support all of those things. So the customers base is, from our perspective, is anyone that cares about application optimization. So we're not so focused on, is it an enterprise customer? Is it -- what segment it is. But most customers now are aligned to application optimization. So it opens up a big world for us. So we have neocloud, we have enterprises and sovereigns is a grouping. Customer concentration right now is a little bit skewed because the land grab is on for certain players. So they've been moving fast, and we expect the rest of the market to catch-up and backfill, right? So we'll have plenty of opportunity with a broad product set. That all said, by [ virtue of ] success with some of the known customers that we have, large technology companies, I think most folks know that we have something to do with the [ Oman ] complex, right? So very forward-thinking application development there. Operators understand that we're applying and supporting these customers, and they're coming to us. So there's really no large-scale customer that's not at least engaged with us in some respect, like what can you do for us and -- from either, a technology perspective or even a capacity perspective. So we expect the customer base to broaden out over time. Again, we have to if we're going to support trillion plus on the market opportunity in a fairly short order of time.

Yes, I get the focus on the big applications, but there's just so much focus on when the sovereigns are going to start hitting and everyone seems to be focused on sovereign and enterprise because there's the perception that they'll need more technology help and therefore, stack is better for Super Micro. So maybe just touch on where you are with those verticals?

So my understanding on that -- from that perspective, on the sovereign side, I know we have engagements across the globe. We have proof of concepts. We have agreements. I think the major hurdle -- not a major hurdle, but a large hurdle would be pre-Thanksgiving when there was quite a bit of a [indiscernible] in the White House and licenses being granted or at least approved for, say, Middle East -- Middle Eastern regions. So I think there's a lot of progress, and we'll see more signs of deployments as we get into '26. We're close to it right now. and the proof points will become obvious. And whether they deploy immediately or through a partner, yet remains to be seen, but there's a lot of activity, and we're involved in, like I said, almost a large amount of those. Okay.

You did mention the $13 billion last quarter in GB300 orders. Could you just talk a little bit about the complexion of that? Like how many big customers? Is it new -- some of it, new footprint, some of it is expansions?

On average, I would say it's -- there's a couple of customers in that cohort, but one was fairly large. So -- and I think there was a new -- there was some new and there was some old. So it was mix footprint.

Okay. I just want to touch on like Edge AI solutions. I think that's something you guys have talked a little bit more about. Maybe give us a sense how you see Super Micro playing there as we get more inferencing in Edge?

So we focused on solutioning for those type of opportunities with some of our partners, key partners. And so it's still early and still all to come, but if you would consider the RTX solution from NVIDIA. There's other elements and other ways to get to those markets. So we have lots of activity with -- on the IoT side or the Edge side. So we anticipate that to be a pretty big volume market opportunity for us downstream. Right now, I think the focus has been on the data center, data center building blocks, and that's an extension of that strategy, and it's on the come.

Okay. And then you mentioned before, not just NVIDIA, but AMD and custom ASICs. So what are you guys seeing as far as diversification from just the NVIDIA GPU engines?

I think from that perspective, we have deployments with AMD and scale with some of the large customers that are NVIDIA customers. And I think that they're taking those workloads that that are capable of running at scale and supporting the customer. So the AMD supporting the customer and the customers' workloads. And so I think there's ample opportunity for us. We're excited about the forward map that they have as well. And we see customers requiring them for different applications across the stack. So for us, we're in a very good position to be able to support either one. And like you said, there's customers who are running both of those solutions. I don't know if it's a dual-source strategy, if you want to call it that. But the ecosystem is expanding and ultimately, potentially that gets into the ASIC market and the multiple players there.

Does that present a different set of engineering challenges or...

I would imagine there's a lot of ability to leverage on the engineering side. They'll all be different, and we have half of this -- the force is engineering, and that's a key strength. And it's becoming more and more important, and we have teams working on different platforms across the stack. So that's a really big focus, and it's -- I think investors should understand that if you believe that this broadens out and there's different use cases, in different verticals or if there's a different model for specific industry verticals, we'll support that. And if you get a better cost per token because you're using Super Micro's engineered solution, we have a customer and we tend to retain customers quite for quite a long time because we work with their application, and we continue to make the evolution of technology to meet with they're trying to deliver customer. Tesla is a great example of that.

Okay. I do want to go back to maybe like kind of competition industry. It seems like you guys were pretty early in like rack scale type deployments, but now you have the 3 big semi companies doing racks themselves, you have most EMS and ODM focusing on instead of the piece parts, the full rack. So help me understand like that industry development and what positions you guys -- I think you've been doing it longer, but what positions you better there?

So what positions us really, really well is what our focus is, is to make that customer happy, right? And at each step of the way, I mean, we started out as a motherboard company. Every step of the way, it's like there's just more technology, more to do. And even the new platforms that everyone's talking about and like, well, this is going to be a standard. It's like there doesn't appear to be a standard anywhere at this point in time. We're enabling that technology. And if we can find new ways to either lower the power [ draw ] or improve the cooling element or enabling bandwidth or enabling connectivity that's in a better, broader way for the customer, I mean, that's all gold for us, right? And so we're doing that with all the different partners. And you can imagine the engineers are like kids in a candy store, trying to figure out what to do, at the same time, there's -- need a focus on the optimal cost solution. So the complexity increases, it favors what we're doing because we're all in on complexity. So that's one element. The second element is it's very understated is the reliability, the quality of what we're doing when we put these things together. These systems multitude, millions of parts just in a rack, but if we integrate all these things and make them work together collectively, and we can lower or improve -- lower the power by 2% or improve the performance by 1% through some architecture change of some sort or improvement. And you do that across scale for a scale operator, that's amazing for them, right? That's value. But at the same time, if the system is more reliable than someone who's basically assembling, you have increased reliability and the operators that's saves them bottom line costs. So better reliable equipment is a value proposition. So the combination of these things as we move forward, are going to be magnified. They're going to be magnified by multitudes of platforms. And if you look at it, who will be the leading supplier in 2027 for AI optimized applications, I would argue that we stand to be in a really good position to be that dominant supplier. We've shown increases in market share for the past couple of years relative to some of the brand names that you know well. And we continue to focus on the customer. And that's where, where the real value comes in, keeping the customer satisfied, and that's what we're optimizing for right now.

Okay. Great. We covered a lot on gross margin. You get that all the time. Curious about as you branch out into other technologies and get the building blocks together. It seems like there's a lot more engineering or investment intensity. So how do we manage really kind of R&D and OpEx profile in the wake of probably a more limited gross margin dynamic over time.

Well, I think we've always been a fairly lean and frugal organization while scaling up. And so that cadence and that focus hasn't changed, there could be periods where it's a little more intense, but the goal is to keep a lid on that and make sure that we're within our boundary, so to speak. So the efficiency of the organization is pretty excellent, which kind of goes back to supporting all the platforms and all of a sudden, we are the de facto standard, and there's no competing platform to offer changes the pricing dynamics. And with the sensitivity of the model and the change in the dynamics, they should translate to better returns for shareholders. And so that's the path that we're on, and it's a long-term view, but the company is all in on doing that and at scale, at a fast pace with the intensity of competition. And we seem to be winning more and more, witness $13 billion in orders for just this one platform in December alone.

Okay. Yes, maybe just one other back to kind of the customer side. You talked about -- just curious of your sense on how sticky the Super Micro platform is when you're in at a scale customer. There was a period where it was like someone wins a big deal and someone else wins a big deal. Everyone is obviously going to be dual sourcing or triple sourcing because it's getting so big. But talk a little bit about that stickiness and what is it that, that will keep you in a strong position at some of the bigger players?

So from that perspective, it's really making the customer happy with the technology and the reliability and the service element of that, this engineering support of that side of the house. And we've had some scaled customers that were not so scaled, not too long ago. And we continue to be not just in the hunt, but a dominant supplier, and we've grown with those companies. And so we think that, that will continue and the retention rate of our customer base is fairly high. Sure there could be sometimes where there's some puts and takes, but it's very high, and we look forward to satisfying those customers and keeping those customers. Now if we didn't keep those customers, at the same time, you'd be asking me a different question, right? So we're all about the customer and we keep them, we retain them, we grow them. And we're looking for ways to help them, and that kind of really led us to what's the next enablement, right? The next enablement is like the data center building blocks enablement as opposed to just providing them with one component. So that encompasses a lot of different platform opportunities for those customers. So keeping them happy, keeps them in the seat, and we've done a really good job by witness of the revenue growth over the past couple of years.

Okay. Great. I think we're bumping up against time here. So thank you, everyone, for joining. Mike, thank you.

Thank you. Really appreciate it. Thanks a lot.

Thanks for joining us. My name is Simon Leopold, Raymond James Semiconductor and Data Infrastructure Analyst. Pleased that you're able to join us here in New York or folks on the webcast. So this afternoon, we've got for our next fireside chat, Michael Staiger, who is the SVP and Corporate Development Head for Super Micro. Michael, I think you've got a safe harbor, and we'll dive right into it.

Thanks for having us. Let me just make the following legal disclaimer. Please note that today's discussion may contain forward-looking statements, and actual results could differ materially due to risks and uncertainties discussed in our SEC filings, which can be found on our website. All right. Now that that's out of way. Thanks a lot. Thanks for having us.

So we were joking before about how -- we've heard it so many times that we still have to read it. So I imagine most folks who came are somewhat familiar, but I'd like to see how do you prefer to introduce Super Micro to potentially a new investor.

Well, all right, that's an interesting approach. I would say from a new investor perspective, and you're thinking about what we're trying to do, what we're trying to accomplish and where we came from, most importantly, where we've always been focused on the dynamics of performance, power and price, so to speak, an application optimized system. We've noticed, obviously, that the AI generation was going to require different platforming, so to speak. And so if you think about the landscape and you think about NVIDIA, you think about AMD, you think about ASICs, you think about ARM and you think about the applications and you think about where hyperscalers play, and they have all kinds of applications that go beyond just using CPUs now, right?

So there's all kinds of infrastructure being stood up. We're optimizing for those applications across the ecosystem. So as we move forward, and we're thinking multiyears ahead, 2, 3 years ahead, end users will require different formats in different segments of the data center for different applications, whether it's models, whether it's inferencing, whether it's edge applications, whether it's IoT. And so we're optimizing the platforms for that. And so since we don't have legacy architecture to support and since we are 50% engineers, we literally are at the forefront of designing and developing systems to bring to customers on a global basis.

So I want to talk a little bit about your take on the AI demand environment. And I think part of the reason I think this question is not as obvious as maybe it first appears is press reports in the last couple of months about the idea that there's an AI bubble and it's not sustainable. I'm in print. So people know I'm an AI bull, so I'm not going to hide that. My biases are not to be hidden. But when you sort of encounter any kind of challenges, how do you -- how would you describe your take on the -- not just the current environment, but the durability?

Yes. So our take is a little bit different than, let's just say, Wall Street's take, right? Our take is from -- is derived from a customer interaction and the customer demand and the ecosystem and what we see. And so from that perspective, it's very robust. I'll just go back a little bit and just talk about where we recently guided our full year numbers up from $33 billion for fiscal '26 to $36 billion. Obviously, there's some demand in there.

Are you talking your fiscal year-end?

Fiscal year is June. End of June. And so when we're thinking about the demand environment, we also discussed and disclosed that we had $13 billion in GB300 orders alone in December that we discussed that we said that would be probably a multi-quarter deployment. And so if you think about what our customers do, neoclouds, enterprises and sovereigns, they're coming to us from all different directions. And from what we're seeing, the demand is just -- it just keeps getting better and broader. And then our ecosystem partners, as you can see, they're all expanding capacity.

And so there's a lot of smart people across the industries trying to address what essentially will be new applications. And I don't know if anyone here has taken a Waymo -- there's an AI element to that, of course, right? So it's just they're at the forefront of a pretty big application-driven market. So it looks pretty good, and we're going to be building to that across all the different stacks.

And maybe double-click a little bit in terms of who those customers are for Super Micro because so much of the -- I think, headlines are dominated by these hyperscalers. And then we talk about terms like neo and sovereign and enterprise. Help us understand what that mix is and who those are? What are they doing?

So the way we think about customers and the optimal customers for us is anyone that wants to leverage data to advance their business. So I think it's fairly well known that we've had customers like Tesla. We've had customers like Twitter, which is now X AI. I'm sure there's plenty of that stack. So those types of customers and the neocloud, the CoreWeave of the world, the Lambda of the world, the other neoclouds that are coming into the fold to serve this.

And the interesting -- like Applied Digital, et cetera. The interesting thing is that the neoclouds are getting workloads from the hyperscalers. And so the neocloud environment is starting to expand quite dramatically. And so I think people are -- and then you've seen a few -- not few but plenty of announcements about infrastructure and RPO and big transactions that the infrastructure may not yet have been built. And so the forward look there is there's going to be a lot of iron that needs to be engineered, manufactured, delivered, integrated and brought up to support the ambitions of our customers.

Now I guess we can accept the fact that there's going to be some lumpiness to the business because they're big projects. One of the transitions that seems to have been disruptive is going from NVIDIA's Hopper to Blackwell, where are you through that transition? And what lessons maybe did the company learn in terms of execution so that when we go through the next generation, how do you avoid that? What sort of needs to happen?

So from our perspective, to understand that we're scaling capacity, we're scaling go-to-market. We're scaling engineering capabilities. And so when we're looking on a forward basis and you think about what we talked about with respect to December, we essentially are standing up a massive brand-new product, right? And the cadence of any new product launch, any new hardware product launch tends to have a little bit of a headwind. And so we had a couple of factors in that element. This is the largest, most complicated system ever been delivered to mankind, and we're delivering it at scale.

And so I think the market needs to understand or appreciate that. So the lessons there from that standpoint is the scale of -- the size of the opportunity we see going forward and putting all those efforts into establishing that footprint, establishing a dominant position there and establishing probably the most reliable build from a system standpoint because when our customers are deploying our systems, the reliability of the systems and the engineering of the systems are very, very paramount to what they're doing. And so if we can deliver a lower cost per watt per compute for them, it directly translates back into their business models, especially in the neocloud and the service provider market. So we're doing an excellent job of doing that, and we will carry that forward in future generations.

Now there's another sort of technological transition that maybe you can help explain this to an audience that might not appreciate the terminology, but you're shifting to more rack scale systems. We talked about the idea of nodes to rack scale. So first, explain to people what that means. And then my real question is, is that a risk? Is this -- is this a phase where it's another challenge that could have stumbling blocks?

So I would say it's not a risk for us being the engineering powerhouse that we are. We started off motherboards, right, partial chassis and then servers, which we consider nodes. And then we've evolved into what you would consider rack scale. So at each step of the way, each turn of technology has become more and more complex, and there's more integration work that's required.

So we've actually taken that a step further, and we're developing what we call our data center building block solutions, which is all the ancillary equipment power cooling, storage and other elements to stand up an entire data center because when our customers come to us and they say, hey, we need to -- we want to get this compute platform together by virtue of delivering racks in the past where we've done a phenomenal job, and we can talk about the capacity that we're able to put together for our customers, they need. We see abilities to productize around that, and that's supportive of a better margin from our perspective, but a better experience for the customer.

And we tend to retain our customer. Once again, we mentioned one earlier, was started off a long time ago and has graduated with us as we -- as things got more complicated, we're able to do more complicated things for them at every turn. And that's what's got scaled the company from a couple of billion dollars a year to -- we're on our way to $36 billion.

And when you talk about retention or stickiness, what's the rationale? Is it essentially you're doing some customization? Or is there something unique or something differentiated? What creates that?

So we try to do like again, lower the cost per compute per watt for a where that is accomplished depending on what the customers' requirements are to deliver that application to them in a way that's best useful for them. So not every customer is the same, not the requirement is the same, but there's a lot of engineering and skill set that goes into what we're delivering to the customers for those that want to take advantage of that. We can do what we would call more reference architecture, capacity kind of builds are a little bit lower margin, but that's kind of where we're focused.

And it's the degree of the ecosystem itself, NVIDIA's platform is way more powerful than it was 2 years ago. AMD's platform is way more powerful as well than it was a few years ago. So it's more complicated, tolerances change, tightness with respect to the build itself and putting in cabling. There's the cooling element that were introduced into the systems that we're perfecting optimization of power, et cetera. There's a whole complication of the firmware, the integration, the cabling, all those types of things to get the customer to run at scale. It's a very complicated setup.

And the company has been growing its capacity fairly rapidly. Could you help folks understand maybe a little bit of sort of where you've come from, what you've added, where we are today and then where we're going. So how much more capacity do we need to add? How are we doing today?

I'm struggling to figure out where we -- where our prior capacity was. But I can remember that we were talking about 2,000 racks a month and 2,500 a month. And now by the end of fiscal '26, June, 3,000 racks on the liquid cooling side, total 6,000 racks. So we've come a long way into that kind of production environment. And if you were to think that the liquid cooled racks are the higher engineered solution with a higher ASP, the market is suggesting somewhere about 3 million or 4 million rack and at scale production, you can see that the revenue support there is quite large. And we've always built capacity in line with what we see long-term demand is. So we're very particular about making sure that they're stepped in process and there's no outsized CapEx requirements and it's scale it as we move forward.

But presumably, we shouldn't build models assuming 100% utilization all the time. So you've obviously given a full year revenue forecast. But when we think about kind of the long-term business model, is there sort of an optimized or a rule of thumb of what's the appropriate utilization to think of?

I don't think we've ever really given a specific kind of number because it's -- the boundaries kind of shift, but half utilization plus would be kind of a nice zone to be in. And so we also take a look at the market opportunity itself, and we've noticed that some of our platform partners are talking about a $1 trillion opportunity or in some cases, a $3 trillion opportunity. And currently, we have about 10% share of these platforms. And in aggregate, I think higher in AI-related infrastructure. And if we're 10% share of these higher -- these numbers that our partners are talking about, well, that's a $100 billion revenue opportunity that is literally right around the corner for us.

And if you match that to what our capacity numbers are right now today, you're saying, well, we're in line to serve that. And our customers want us to be able to serve that. So we're -- I think we're in a very good position to serve the market and to serve them at the leading edge and broaden out the base. Like I mentioned before, we have multiple different platform partners. We're not just supplying one particular product. We're architecting designs across the board for our customers to take advantage of it. So we'll be a platform provider of accelerated compute on a long-term basis. And we think that we -- I wouldn't say stand-alone, but we look very well positioned for future growth.

Now the other topic that the investors keep harping on profits. So I guess it's great that you can sell a lot of products, but the investors also like you to be profitable. Gross margins have naturally been under pressure in, I think, the whole space. I don't think it's unique to Super Micro. But I feel like it's always sort of tomorrow, tomorrow, tomorrow. What do you see as sort of the time line and the outlook for improving margins?

Well, one, you pinned it, like the dynamics in the market right now are tremendous. I don't think we've ever seen a period where we've had so much change so quickly. So from a margin perspective, we're guiding 1 quarter ahead on a margin front. And if you think about what we're doing right now this quarter and with the parameters that we provided, this is the largest, most complicated revenue product cadence that we've ever been on. And I don't know if the market really understands or appreciates that. So as we grind into that and solidify that as we move forward, we have mentioned that we will leverage this product set as we move forward.

The second piece of that would be we're also expanding the offering to the customers. So from a margin perspective, you're thinking customer mix is important, product mix is important and then manufacturing efficiencies are important. And we can control all 3. One of them is a little quicker to control than the others. The customer mix is starting -- we think the customer mix will broaden out. We see the product mix from our perspective broaden out as well, as we move forward. And all these things will come into play, and we've always wanted to operate in a very -- a much higher profit zone, and that's the goal of the company, and that's the goal of Charles to get there.

Now the other sort of aspect of, I guess, cost that's really been a hot topic is memory in that -- any time you build an AI platform, you have to buy memory chips, high bandwidth memory, DRAM in particular. How have you managed through that? Just as a side, I think we've all been surprised watching some of the earnings reports. It hasn't been as bad as feared, but it's our nature to worry about what comes next. So with that.

Yes. So in general, so if we're thinking about what we're delivering right now currently and likely in the future, there's a heavy skew towards AI-related systems. And so the DRAM element there is less of an issue for us. We tend to contract with our customers on, I wouldn't say real-time basis. But we're not forward buying massive amounts of memory. We're not making any bets on our supply chain. So like the period during COVID, we have a very flexible capabilities from a supply chain perspective. So we'll manage through it like we always have and try to minimize any impacts as we move forward. So not as exposed as the PC and it has an impact on the general server business. But again, our customers are really leaning in on the AI side. So not as exposed as some others.

Do you have ability to contractually pass these costs off? Can you?

So ultimately, if customers are looking to build out and the price of memory is higher and where -- that's what it is, they're going to be in a position where we'll have to be passing that cost on to them.

So you've got some flexibility.

We have some flexibility, yes.

So the other thing I sort of think about how the company has been evolving is I always looked at it as somewhere between the white box vendors and sort of your traditional OEMs and you've run lean. You generally are a pretty efficient company. But as you're sort of moving upmarket, moving more sort of branded type behavior, do you see the business model, the operating model changing, either becoming more R&D heavy or more marketing heavy? Or you sort of the culture is a culture and live with it?

I don't want to be as succinct as saying the culture is the culture. What I would say is that we're focused on the customer, okay? And we're focused on the dynamics from the end customer's perspective. And should that change radically, and there's always something new and better to do and to offer, and there's always a bevy of customers that want more. I'd like to frame it in the fact that 10% of the market is like the most high performance you can get, 10% of the market might be the lowest cost, the most efficient you get.

So somewhere in between, we're covering both of those ends, and we may move more towards the middle, but it really is going to be driven by what customers want. And what we're seeing is platform expansion, right, and opportunity expansion and product expansion for us to address that in DCBBS. So as we move forward and you think about what the company will be, we will be supplying AI accelerated platforms across data centers across the globe. That's where we're positioned right now.

So I'm going to ask a question and admit upfront, it's a little bit unfair. And so I'll preface it.

I love unfair.

Acknowledge it. In that -- Super Micro has sold to enterprises in the past. That's the unfair part is to pretend you never did. But when I think about what the sort of dominant branded IT companies spend on sales and marketing, it's in [indiscernible] it's a lot more than you spend. So it feels like a big challenge. How does Super Micro become more and more competitive without the same kind of sales and marketing budget for the broader enterprise market? Or is that just not on the table for you?

I think there's -- I think the view of what the market will be is changing, right? So it will favor what we are doing. To have the concentration of selling equipment to every mom-and-pop shop, so to speak, in that branded environment isn't really where we think the market may be going. In fact, in some respects, it could be going a little bit more to service provider and broadening out the service provider and then follows on with an enterprise element.

And so what's been helpful for us as we serve some of the enterprise customers that are technology forward and the service providers are technology forward, there's sort of an interplay there. And they're coming to us. DevOps people know that we are building the best gear and the best equipment. And so the branding element is a factor in the current environment, but will gradually fade as we do more for our customers and they come to us because, hey, Super Micro can do this for me. They did it for the CoreWeave, they did it for Tesla, they did it for -- that's very powerful from our perspective, and it's been a driver of business for us, and you can see it in the growth.

Yes. It's interesting in that when we -- at the time when we did the initiation of coverage, you were the sort of leader among the branded products and sort of chipping away at the white box. So I think -- I want to ask you about how you think about the competitive landscape and frame it in 2 dimensions because you sort of are competing against the white box on one side and the branded on the other. How do you think about that? Fight on 2 fronts?

I mean, sort of in a way, right? So the 2 fronts that you're talking about, I think the -- in general, we view our ability to bring a better product, whether it's for -- we'll design a better product. So what potentially could happen is that some of the customers that the hyperscalers are being served generally by some of the white box folks in mass. If they need something more and better and beyond with their own design, and we can deliver that, then that opportunity set opens up for us. And again, if you look at the behavior of the hyperscalers and the numerous amounts of new applications that they're trying to develop and the chipsets that they're trying to develop, et cetera, we should be able to serve -- we could serve them if they wanted to. But the rest of the market, at the same time, needs the skill sets that we have to bring them up.

So 2 fronts. We're very focused on, like I said, the customer and delivering the most performative systems for those folks at the lowest price and the best experience. So I think that in balance, the market is big enough to support what we're doing in a major way. So if the white box model is -- I still think it's going to be as static as people might be underwriting.

And then I guess we're thinking about other tools you can employ to grow into some new customers. And things I wanted to check on is you don't have a financing arm, some companies do. Are there ways you can tackle that without maybe burdening your balance sheet? Or are there sort of -- are you pursuing partnerships for expanding your market, working with other -- I think you did a deal recently with Nokia as an example.

Yes. So there's multiple different ways, channel programs and partners. And like, again, it's an example of folks coming to us and looking for our expertise to help them get to market, which is basically what we're doing for our platform providers. But from a standpoint of offering financing, I don't necessarily think that that's a limiting factor. Almost any of the customers can obtain -- there's plenty of sources for financing. So I don't think there's anything specifically on the table from a financing perspective, and I don't think it's holding us back at all. Obviously, it's in the numbers. It hasn't held us back.

And what about partners, OEM partners, go-to-market partners? How important is that?

I think they're important, and we will support if there's opportunity sets with a number of these folks to bring platforms jointly developed to the market to enable them and to enable the industry. So I think we're more than open to that. And I'm sure we're working with many on that front.

And are there aspects of the value chain that maybe you'd want to either become somewhat more vertically integrated? Obviously, you're not going to become a GPU vendor, but technologies like cooling or the racks. It seems as if your sort of core competency is the engineering and the manufacturing capacity. But so many companies sort of go down this path of incorporating elements to improve margins. Is that a logical part of the strategy?

So I think from a standpoint of the founder from Charles' perspective, that doing the best for the customer works and sometimes going down and owning something that we may not need to own because it may be out of favor 2 years, 3 years. So we'd be very, very careful in what we would consider a durable asset that would help us out. That said, as the company has moved from, let's say, the server level, right, to the rack to the data center level, there could be some things that could fit, but we'll have to cross that bridge when we come to it.

And I want to talk a little bit about sort of supply chain resilience. So please correct me if I get this wrong. You've got U.S., Taiwan and Malaysia as your primary location.

And we have -- primary, we have the Netherlands.

Netherlands. And so if you think about your supply chain, what do you think are the risks? How do you see your ability to manage it? And what are the sort of greatest sensitivities? What would be the choke points? What's your weak link here?

Well, obviously, I'm not going to be seeing -- I don't think there is a weak link. But what I would say is that, one, we're expanding in all locations. We're expanding capacity in all the locations, including in California. We're looking at some new locations. We've been vocal about that, that could be Mid U.S. -- or whatever.

So we're always evaluating what we can do for our customers, where the customers may need that. You've seen a couple of things that we've done. We've established a federal subsidiary or federal entity to address that business directly. We've established a presence in the Middle East. So we're global, and we're expanding that. So if one site is advantaged from a delivery perspective or a production cost perspective, we can flex our capabilities there. So that's kind of how we've been operating, and it's been working pretty well.

So I guess maybe -- my constraint or sort of sensitivity question was, I feel like in the past, it was just the allocation of GPUs was what we could point at. More recently, it sounds like it's high-bandwidth memory is very tight. So what are the tightest parts of the supply chain? Maybe that's a different way to think about it.

Yes. So I mean, obviously, memory is the thing that people are pointing to. I would -- I don't think there's anything that's necessarily constraining us in that construct. So customers -- our customers tend to get the allocation of the GPUs. So they're aligned with us as their provider. So we -- and we've done a fantastic job of delivering to our customers, right? So that's why they keep coming back and ordering from us, and that's why we're getting the allocation that's the predominant point. So we're just continue to -- whether it was the supply crisis and COVID or whatever, there's all kinds of different challenges that we've managed through every one of them and continue to keep on the trajectory that we are from a growth perspective.

So if we sort of step back and think about kind of the vision of what Super Micro might look like 5 years from now, and let's do this on the assumption that the CEOs of AMD and Broadcom and NVIDIA are all correct. Let's just accept that. In that world, where do you see Super Micro in 5 years?

So that world exists, and I think it may -- will be a much larger company, $100 billion is more than on the table. Market share will be probably beyond where we are now because there will be customers that will be flexing in size and scale that needs our capacity, then we'll be able to deliver to that and the engineering support that goes around it. And it will be a very good outcome for the company long term.

And so...

And a branded name more than likely at that point in time. Because we will be supplying all the different platforms.

So if you were sort of encouraging an analyst who's monitoring your company, what metric or metrics to watch? Is it market share? Is it revenue growth? What should they be focused in?

I think right now, we're focused on revenue growth and market share. And those are very important because we can leverage a lot of different elements with the size and capacity that we will have, and we can modulate how we want to behave in the end market. So I think that's -- those are the primary goals I would keep you focused on.

So I want to check with the audience if we've got any questions out there before we -- so a question I always like to close with is, what do you think is either the most misunderstood or least appreciated aspect of the Super Micro story.

Well, I think, one, the least appreciated aspect is this product launch and scale is unbelievable, and it's fantastic. And that's just people are looking at the margin as opposed to like what we're doing, right? That's one thing. And so the second piece that I think that people are underestimating is like the applications that are going to be utilized in the future, like the bubble talk, right? So they're just starting to get underway.

And the more applications come to the market, the more the use of this data becomes useful in various different platforms, it will be -- it will look different. And I think analysts tend to look at the server business of the traditional how things worked in the old days versus like what they will look like tomorrow. And we're working on what they will look like tomorrow and people are completely missing that.

Well, great. Well, Michael, thank you very much for joining us today. Folks, thanks for joining us. Wrapping up the Super Micro.

Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Business Update 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.

Thank you, Matt. Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the first quarter and full fiscal year 2026, which ended September 30, 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 press 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 second quarter of fiscal 2026 and the full fiscal year 2026.

These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2025 and other SEC filings. All of these documents are available on the Investor Relations page of our 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 accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how the company's management evaluates the company's operating performance.

These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of non-GAAP to most directly comparable GAAP results is contained in today's press release and in supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for sell-side analysts. Our second quarter fiscal 2026 quiet period begins at the close of business Friday, December 12, 2025. And with that, I will now turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. Fiscal 2026 is off to a strong start as we continue the early phases of the dynamic AI growth trend. Demand for advanced AI compute and infrastructure solutions is evolving rapidly, and Super Micro is uniquely positioned to lead with innovative, high-quality and value-driven solutions, including our data center building block solution, DCBBS. The major highlight this quarter continued to be our industry-leading AI portfolio.

Our NVIDIA [indiscernible] GB300 product line now have more than $13 billion in back orders, including the largest deal in our 32-year history, reflecting the tremendous growth potential in hyperscale and enterprise deployments. The B300 platforms are also gaining strong traction following the success of our B200 products as we continue to serve as the leading supplier. As noted in our pre-announcement, approximately $1.5 billion in revenue shift from the September quarter to December quarter due to last-minute configuration upgrade from our customers with expanded volume. This shift were largely caused by the complexity of these new GPU racks, which requires intricate integration, testing and validation, making them more time consuming to source and build.

With production now quickly ramp up, these adjustments have eventually strengthened our growth trajectory and support an even higher full year outlook. Our product portfolio continues to lead the industry. In addition to NVIDIA GB300 and B300, we are shipping RTX Pro 6000, V200MVNO4 and AMDMI350355X platforms in volume to power generative AI large language model inference and HPC workloads. To continue technology leadership in AI platforms, we are preparing for the NVIDIA VolalLubin and AMD Helios launches in calendar 2026.

Edge AI solutions are also gaining more traction for real-time processing in manufacturing, telecom, retail and autonomous environments. We are deeply focused on training LLM and generative AI, we also see rapid growth in industry-specific model, agentic AI, broader infancy and AI at the edge. With that, we are seeing accelerating demand across cloud, enterprise and so as they upgrade and expand the data centers for AI. Our DC DBS helps customers accelerate and optimize customers' transformation.

BCBBS is critical to our future success, enabling rapid plenty design and deployment of AI data center and AI factory, while optimizing performance and minimize power consumption through our advanced and DLC 2 technologies and high vision subsystem. Supermicro building -- now go beyond service system and recalculation it's optimizing the entire data center for customers. With product life cycle completion from 18 to 24 months to as short as 12 months. Customers need rapid innovation, deployment and time to online BCBBS delivers re-scale propane service, storage, BLIC systems and 2 heat exchangers, power share, battery backup for water towers, dry towers, network and capability management software and services.

We have begun shipping BCBBS orders to some key customers and expect many more data centers to follow suit. This solution is becoming a critical part of our business strategy, driving future growth and profitability. We are investing now and over the next few quarters, we will share more detail on our expanding DCBBS portfolio and upcoming release. To mean that this unprecedent demand. Supermicro is executing an aggressive global expansion. Our silicon value facility remained a foundation of U.S. operation, delivering time to market, quality and security for customers.

We have quickly expanded our footprint in [ Sunosi ] recently. And our soon added new North America sites to support the growing requirement for major CSP and NCPs. This investment underscores our commitment to amenitize innovation, job creation and supply chain desires. Internationally, new production facility in Taiwan, the Netherlands, Malaysia and soon on the Middle East are coming online to enlarge our production capacity, enhancing cost competitiveness and meet regional sovereign AI requirements.

With 52 megawatts of power capacity in place. We are on track to scale production to 6,000 recs per month, including 3,000 LLC -- within this fiscal year. While these expansion require out form investment, they are critical to sustain long-term growth and deliver performance PTO time to online and costly recency at scale.

In summary, Super Micro is developing into a leading AI platform and data center in structure total solution company. While we continue to grow our server storage drag and IoT systems. Our BCBBS delivers unique advantages that set us apart are designed to reduce customer deployment, complexity, excellent time to market, time to online and lower total cost of ownership, combined with our broad supply chain, deep customer relationship and expanding partner ecosystem, this capability positions us to become the leading data center infrastructure [indiscernible] company.

Recent large-scale orders and continue investment in customers, products, people and our processes put us firmly on the hand -- competition remains intense. We are focused on capturing tremendous AI infastructure market share, some large-scale builds and pressure margin in the near term. But our scale, innovation and differentiation, differentiated BCBBS offerings strengthen our market leadership and position us to deliver long-term profitability and shareholder value. Looking ahead, we expect to ship at least $10.5 billion in the December quarter, depending on the supply and production capability readiness.

We anticipate a sequential growth through fiscal 2026, giving us confidence in achieving at least $36 billion in revenue for the year. This is a truly unique time for Super Micro and I am super excited about the opportunity ahead. I look forward to sharing our progress with you next quarter. Thank you. Now I will turn it over to David.

Thank you, Charles. Q1 fiscal year 2026 revenue was $5 billion, down 15% year-over-year and down 13% quarter-over-quarter. Compared to our guidance, of $6 billion to $7 billion. We had a record level of new orders exceeding $13 billion, but a customer's custom rack platform upgrade for a recent large design win and customer logistics factors delayed some shipments to Q2. We expect customer demand to remain robust for the remainder of fiscal year 2026.

AI GPU platforms, which represented over 75% of Q1 revenues continue to be the key growth driver. During Q1, the enterprise channel revenues totaled $1.5 billion representing 31% of revenues versus 36% in the prior quarter. This was down 51% year-over-year and down 25% quarter-over-quarter. The OEM appliance and large data center segment revenues were $3.4 billion, representing 68% of Q1 revenues versus 63% in the last quarter. Up 25% year-over-year and down 6% quarter-over-quarter. The emerging 5G telco edge IoT segment contributed the remaining 1% of Q1 revenues.

For Q1 fiscal year 2016, we had 2 10%-plus customers. By geography, the U.S. represented 37% of Q1 revenues; Asia, 46%; Europe, 14%; and the rest of the world, 3%. On a year-over-year basis, U.S. revenues decreased 57%, while Asia grew 143%. Europe increased 11% and the rest of the world increased 56%. On a quarter-over-quarter basis, U.S. revenues declined 16%, Asia decreased 4%, Europe decreased 16% and the rest of the world declined 48%.

Asia grew significantly on a year-over-year basis as an existing U.S.-based customer opened a large data center in Asia. Q1 non-GAAP gross margin was 9.5% versus 9.6% in Q4. Q1 GAAP operating expenses were $285 million, down 10% quarter-over-quarter and up 7% year-over-year. On a non-GAAP basis, operating expenses were $203 million, which was down 15% quarter-over-quarter and down 2% year-over-year. Operating expenses were down quarter-over-quarter due to high marketing expense reimbursements and lower discrete R&D expenses. Non-GAAP operating margin for Q1 and was 5.4% compared to 5.3% in Q4. Other income and expense in Q1 totaled a net income of $26.3 million, reflecting $51.2 million in interest income on higher cash balances and FX-related gains, partially offset by $24.9 million in interest expense, primarily related to convertible notes.

The tax provision for Q1 was $40 million on a GAAP basis and $59 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.3% and a non-GAAP tax rate of 20%. The Q1 GAAP diluted EPS was $0.26 compared to guidance of $0.30 to 42% -- $0.42 and non-GAAP diluted EPS was 35% versus guidance of $0.40 to $0.52. The GAAP fully diluted share count increased sequentially from $625 million in Q4 to $663 million in Q1. And the non-GAAP share count increased from $638 million to $677 million over the same period. Cash flow used in operations for Q1 was $918 million PAUSE compared to cash flow generated from operations of $864 million in the prior quarter. Q1 operating cash flow was impacted by lower net income and higher accounts receivable and higher inventory levels as we prepared for a strong Q2 with higher working capital needs.

Q1 closing inventory was $5.7 billion, which was up from $4.7 billion in Q4. CapEx for Q1 totaled $32 million, resulting in negative free cash flow of $950 million for the quarter. During the quarter, we executed a $1.8 billion AR facility that enables the nonrecourse sale of certain qualified accounts receivable, providing flexibility to strengthen our working capital on a discretionary basis. At quarter end, our cash position totaled $4.2 billion, while bank and convertible note debt was $4.8 billion, resulting in a net cash -- in a net debt position of $575 million, compared to a net cash position of $412 million in the prior quarter.

Turning to the balance sheet and working capital metrics. The Q1 cash conversion cycle was 123 days compared to 96 days in Q4. Days of inventory increased by 30 days to 105 days versus 75 days in the prior quarter. Days sales outstanding increased by 5 days to 43 days versus 38 days in Q4, while days payables outstanding increased by 9 days to 26 days versus 17 days in Q4.

Now turning to the outlook for Q2 fiscal year 2016. We expect net sales in the range of $10 billion to $11 billion. GAAP diluted net income per share of $0.37 to $0.45 and non-GAAP diluted net income per share of $0.46 to $0.54. We expect gross margins to be down 300 basis points, relative to Q1 fiscal year '26 levels. Given the fast-moving dynamics in the end markets, we wanted to provide the framework of the factors impacting our gross margins.

First, customer and product mix, including a strategic Q1 large design win, which includes higher cost and a lower margin as we ramp a new mega-scale GB300-optimized RAC platform. And second, we are making greater investments with new customers to ensure their success with additional AI engineering support and services. To drive future growth, we believe that our investment in supporting these customers is leading to other large global design wins. Our long-term goal is to expand revenues in higher-margin segments such as data center building block solutions, emerging global CSPs, sovereign mega projects, enterprise data centers, IoT and telco solutions and software service offerings.

We do expect to benefit from some economies of scale driven by higher revenue levels, a cost-effective global manufacturing footprint, including our Malaysia facility and continued customer diversification. As we complete this mega cluster, we expect to leverage these investments and are establishing the most advanced AI service capabilities in the market. As we go through this transition, we expect our gross margins to improve. GAAP operating expenses are expected to be around $326 million in Q2, which includes approximately $76 million and stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q2 of fiscal year 2026, fully diluted GAAP EPS includes approximately $64 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 result in a net expense of approximately $27 million.

The company's projections for Q2 fiscal year 2016 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.6% and a non-GAAP tax rate of 16.8% and a fully diluted share count of $666 million for GAAP and $680 million shares for non-GAAP. And Capital expenditures for Q2 is expected to be in the range of $60 million to $80 million. For the full fiscal year 2026, we are raising our outlook to a net sales of at least $36 billion versus prior guidance of at least $33 billion. Michael, we're now ready for Q&A.

Great. Matt, take some questions.

[Operator Instructions] First question is from the line of Samik Chatterjee with JPMorgan.

This is MP on for Samik Chatterjee. I just wanted to ask my first question on the PAUSE the revised guidance between like availability of chipsets and market share expansion. What do you think is the more of a driver for increased revenue guidance?

Yes, NVIDIA, a we Altran is getting available. So we are PAUSE receiving more and more allocation from them and preparing for a huge volume to ramp up start from this quarter. That's why this quarter, we estimate at least PAUSE $10.5 billion. And looking forward, I mean, without DC BBS, we will focus on both. One is continue move higher revenue. The other PAUSE direction is move more value to the market and in data center put solution with our BCBBS.

As a follow-up, I just wanted to ask on DCB BS. Like I think you already started shipping those solutions. And like when do you think the DC BBS will become material enough to actually impact the gross margins? And then my other question is, like, are you -- any thoughts on initial feedback from customers? And then also any thoughts on the competition, which you are seeing relative to.

Yes, thank you for the question. Yes, DCP have been very welcome. We have some current large accounts already older some were the key BCBBS components. And we expect more and more customers will commit to our BCBBS. The idea of like what we share is to speed up customer to deploy, build a data center, save their time to online. And also make our more efficient, save money over build more solid data center. And the profit margin will sell a much higher in the industry for data center infrastructure. Basically, the business is more than 20% of margin, and we are very excited for that product line to be getting available. And I believe it's a well population.

Next question is from the line of Asiya Merchant with Citigroup. PAUSE.

Great. PAUSE The order pipeline that you guys talked about is pretty strong. And so if you can help us understand what's the components that are contributing to such a strong order outlook that you have embedded into your guidance? And if I may, you guys talked a little bit about -- or about this revenue guide that you guys are exceeding sequential growth expected post fiscal 2Q. If you can just also help us understand how we should think about gross margins as we proceed through the year and the OpEx to support such a strong revenue outlook.

Yes. I mean, GPU, for sure, contributed most revenue kind of like the backward and Kindle AMD 350, 355 and breakaway of B3 and RPX, right? So indeed, a lot of strong product line are driving our revenue. And at the same time, again, for the best interest to our customers, we try to provide data center end-to-end solution, including DC including management software, on-site deployment and service. So to put in a one-stop shopping for customers' advantage and also grow our profit margin. And David, you may add assumption for a long term.

Sure. Yes. So on the gross margin question, we are -- we're going into a quarter where we are ramping 1 of the largest clusters in the world. We're ramping a new a new product line at mega scale. And so therefore, we're being a little conservative on the margin because we will have a higher cost as we ramp production and shipment. So we're just giving guidance for 1 quarter out, but we did mention that as we go out throughout future quarters, we're expecting to improve for the reasons that we laid out. On the OpEx side, you can tell from looking at our -- historically, we are that sub-5% OpEx, and we expect that to continue. But we will continue to increase our OpEx in order to strengthen our infrastructure.

Yes. I'll let you add to more areas. Yes. One area is traditionally, our revenue was about $5 billion to $6 billion quarterly. And now we are growing to $10 billion quarterly. So that, for sure, increase short-term challenge. And that's why we had to leverage U.S.A., Taiwan, Malaysia facility. And that kind of involved hiring lots of new people turn out people and add facility. But once this much higher capacity facility already in this quarter, December quarter, we will be able to service large customers in U.S.A., in Asia and Europe, truly global major supplier.

And by that time, for sure, our resource leverage will become much more efficient. PAUSE And second is our DCBBS is getting mature and getting ready to service more customers to put in more value to customers, and that I believe we have grown our profitability.

That's great. If I could just on the orders that you talked about, $13 billion, I know you provided at the chip-set level. I think I was looking for just customers that are constituting that $13 billion? If you can just share some insights into how percentage of customers that are in there that contributed to such a strong order book or $13 billion. Thank you.

So they constitute some of the best customers in the world. I'll say that. We had 2 10% customers this year, we ended last year with 4 10% customers. We always welcome new large customers. And -- but we don't have any -- we usually don't talk specifically about individual customers.

Yes. But they are really high-profile high-value partner for long term. That's why we do such a big effort to greatly increase our capacity to support them. There are some of them. So we are very happy to enhance the support to low -- high value partner.

Next question is from the line of Ananda Baruah with Luke Capital..

A couple, if I could. Charles, the midpoint of the guide for December is $10.5 billion. And the guide for -- the update you got for the fiscal year is at least $36 billion. So if I model out $10.5 billion for each March and June, I get sort of just over $36 billion. You're talking about a lot of $13 billion in GB 300 product wins, a lot of good activity going forward.

So I guess my question, Charles, is -- first 1 is, are you being conservative? Is there conservatism baked in to the implied March and June quarters? Or should we expect some flattening out of revenue in the coming quarters? And then I have a follow-up.

Yes. Thank you for the question. Yes, this is the first time we grow our revenue to about more than $10 billion a quarter. So we are very excited about it. So now we already extend -- expand our capacity global and train our people and have all our facilities ready. So from now on, we are ready to be really big supplier around the world. And with Blackwell getting mature and ERA quality, everything is promising at the last moment. And so we feel very excited to have at least $36 billion. And hopefully, it's a very conservative number.

And at the same time, we are doing our best to grow our DC BBS total solution because that's unique data center infrastructure tool to help customers build a data center quicker, better, save energy and save money. So overall, I believe with BCBBS become more mature, our profitability will improve.

And Charles, you -- I know we're talking fiscal year we're talking fiscal year expectations. But do you anticipate the strength to continue through the calendar year? There's been a lot of large deals with NeoCloud announced lately with large AI labs and hyperscalers, and that's your sweet spot customer base than NeoCloud. So should we anticipate this kind of strength without giving me a guide, but PAUSE could the strength continue through the balance of the calendar year.

Yes. Indeed, our capacity is in diving scale now, as you know, right? So $36 billion is a very conservative number. So we believe we will continue to grow quickly, continue to lead the market. We'll use not just technology, but also market share.

I appreciate that. Mike, just 1 quick clarification with David here. David, just to your prior comments about gross margin improvement through the year, is that to say that December quarter is the low watermark gross margin quarter for the fiscal year?

Yes. is fair. We are -- as I mentioned, this is a quarter of first impression for us on standing doubling our revenues in 1 quarter. And so we're doing everything we can to improve our margin, but we're not making forecast out beyond December quarter.

Next question is from the line of Ruplu Bhattacharya with Bank of America.

David, can you remind us how much total revenue can your manufacturing footprint support today? And when it's fully utilized, what would that number be -- at what point do you decide to add more capacity, such as adding a new plant? And if you can weave in any update to the Malaysia plant, is that now building racks? And what's the status of that plant? And I have a follow-up.

Okay. So maybe I'll let Charles talk about capacity, but we've mentioned that we have a rack capacity of 6,000 racks per month worldwide. And so I don't think that we have spoken as to what that value is. But I can say that Malaysia, we are starting to stand up more in terms of their production, and we expect it to contribute greatly going forward. let me see, did I answer what are the questions did I miss there?

Yes. I guess we try to be very, very conservative. Because with Black way Altra is still brand new, right? So we had to make sure we ship exactly the best quality, the most reliable system to customer. And that's why we spend a lot of time to burn in our solution. And that's why we build up such a huge capacity. It will time 3,000 like cooling power per month and time 12 months year and each right, for example, $3 million. So the number is more than $100 billion. So yes, if everything moves, our capacity is that $100 billion range now.

But we try to be conservative and try to design carefully, burning carefully, make sure all the product we deliver to the market. exactly the pace in the market.

And as a follow-up, David, can I ask? You have this large project ramping over the next several quarters. How should we think about working capital and cash conversion cycle and free cash flow? And at what point would you need to tap the markets to raise more capital?

Yes. So we've maintained about $5 billion on average. And obviously, when you double your revenues, that's not going to be enough working capital. So as we announced, we did put an accounts receivable sales program in place, which allows us to factor our receivables up to $1.8 billion. And we're also -- we also have other programs that are being put into place to meet our needs over the upcoming quarters. So we have no doubts about our ability to execute on those programs.

Yes, to a -- we definitely have a capability to service more customers with a much higher volume, but we will control the revenue based on our cash flow.

Next question is from the line of Nehal Chokshi with Northland.

Yes. Thank you. Great demand there and understandable that wrapping up a new customer on the V-300. But I guess, I think it was maybe a year ago, 1.5 years ago that it became apparent that you guys were helping XAI losses Class 1 ramp up. And that was dilutive to margins at that point in time. The rationale was to get the lighthouse customer and demonstrate the Super Micro's engineering capabilities. Why is it necessary to basically do a rent to repeat of this proof of Super Micro's engineering prowess.

X AI, for sure, a very good partner. And whenever we have a chance, we try to work with them to learn some things from them and to offer our face service. So yes, ex AI will continue to be our important partner for long term. And again, our capacity is huge and capability is much bigger now, but we will be selective to grow our revenue based on our cash flow.

And Nehal, what I would add is that what we are doing is that we are validating each time as we did 1.5 years ago and now that we're the premier provider of advanced DC BBS solutions and AI data centers. So we gladly stepped into that role, and we continue to get additional business each quarter as a result of these successful installations.

Next question is from the line of Quinn Bolton with Needham & Company.

This is Shay Mowali on for Quinn. My first question is on gross margin. I know you guys mentioned new facilities coming online and that possibly being a PL1 for your gross margin over time. So we're just wondering if we can get some more color here on the timing and maybe just the overall impact of the new facilities would have.

Yes. As you know, either we need to invest in Malaysia and Taiwan in U.S.A. over location. So make sure we have enough capacity to bring the best quality product, most optimal to the market. PAUSE So in December quarter, we spent a lot of money to establish foundation. And going forward, now we have those capacity and capability. to grow much larger scale business.

Great. And then my follow-up is on the Super Micro federal program you guys announced in the quarter. was just curious if we can get some more color on this program? And maybe what led to the creation of it and how this initiative could position Supermicro for government contracts going forward?

Yes, we are USA company and have designed manufacturer service from Silicon Valley. So federal business ship sweep for us. And now we have more talent and service in a customer relationship in or they kind of support. So that's why we officially initiate fatal program

Next question is from the line of John Tanwanteng with CGS Securities.

I wanted to expand on the prior question on just the case study with Valassis last year and how you took the margin hit to land that customer and validating new technologies. Apparently you're doing it at this time with the bigger customer and at a lower margin. So I guess the question is, philosophically, I'm not asking for margin guidance, but how do you expect to grow the margin going forward from here?

And like how do you prevent that from happening again? Have you seen that stronger margin from follow-on orders from the customers that you have validated your technologies to? Or is that still something that is on the comp or has it been possible in this environment for whatever reason?

So there are several different initiatives. One, John, as you know, we get leverage off of the additional business that we have. We also, as we've mentioned, are pursuing manufacturing in other geographies in order to serve local customers, which we believe will also lower costs -- we also have added on data center building block solution strategies, which we try to outline on every call and the expansion of business.

But it's really, as I mentioned earlier, it's the success and the market share that we're taking that are bringing a lot of emerging, not only existing companies from around the world, but also -- and sovereigns, but also new and emerging CSPs and Neo clouds and other companies, enterprises coming to us because they recognize the Super Micro name. So we expect that, that will overall raise our margin profile and so we're doing everything we can to raise our margins. But yet, we still want to be the premier provider of DC BBS solutions. And so we think that we have a good strategy in that regard.

Okay. And just to clarify, have you seen the higher margins from customers where you maybe gave them better pricing or put you on investment into the initial orders as you get follow-on orders and repeat business from them.

Yes. So every -- different customers have different margin profiles based on the amount of design that the Super Micro does for their solution. as well as the size of the order that they're placing. So as in any business, customer ordering $1 billion of product is different from a customer ordering $10 billion of product in terms of pricing strategy. So therefore, we're very happy that the customers that we have brought into the Super Micro portfolio of customers is really adding a lot of name value to our brand. And so that's what we're very pleased about. We're gaining market share. there's no question about that.

Got it. If I could sneak in 1 more. Just how are you accounting for the risk of further pushouts in the revenue outlook for the year, just given you've had a couple of high-profile ones already? PAUSE.

Yes. So the timing of it -- whenever you're dealing with very large projects, it's not always easy to fit deliveries into 1 3-month time frame. And there are all sorts of -- I mean if you take a look at the thousands and thousands of parts we have to bring together to build our solutions. And also on the customer side, the things that they're having to do to get their data centers ready there's a lot of logistics that have to take place. It doesn't always line up perfectly with our quarter ends. So we've said, as we continue to take large customers, it's going to be -- there's going to be things beyond our control which includes customer readiness, which includes supply chain issues and et cetera, that will -- that may impact quarter-to-quarter results. But if you look at last quarter, or if you look at the last 2 years, we went from $7.5 billion to $15 billion to $22 billion, okay?

So that trend did not stop. We were adding $7 billion for the last 2 years, each year. Now did those quarters all line up perfectly according to our plan, our annual plan? Not always. But the trend is still there. And we've increased our PAUSE our revenues as well as our profits. And that's what we intend to continue to do.

Next question is from the line of Mark Newman with Bernstein.

So very encouraging to hear about the PAUSE large orders, $13 billion order you mentioned. Just curious, though, there's not a lot of historical data on orders or backlog. And any color you can give on the size of the backlog of orders or how $13 billion compared to previous quarters. Just trying to understand that what's the size of the which we've got guidance on from some of your competitors in the past. And another follow-up question on gross margins as well.

Okay. So first, I'll answer that, your first question on historical data. We've -- it's been our practice not to talk about backlog we couldn't help but talk about the orders that we receive, the new orders that we received, new design wins because they did have some impacts in both the current quarter as well as the December quarter. And so we're speaking to those. But we're not -- we don't talk generally about backlog. So I'll take your second question on gross margin.

So gross margins, I mean I know you're trying to stay away from long-term guide, but previously, I believe you've talked about this 15% to 16% long-term target for gross margins. Is that still intact but pushed out or -- is that now not up for perhaps? Just curious what's the thinking on that?

Yes. Back in 2000 -- I think in 2021, we came out with a 14% to 17% gross margin guide. That's probably what you're referring to as a long-term target. The market has changed. And so we, in fact, we're right in the middle of a change right now as we move on to some new very new dynamic platforms. And so we will give margin guidance as we can see it clearly. We're doing our best to raise margins in a very competitive landscape. Yes, we would love to be back in double digits. But we'll give guidance when we can see it clearly.

And hopefully, it's not too far away. Indeed, we focus more on DC BBS and enterprise account, then double digital is easy for us. But at the same time, we are very interested to support a large-scale CSP as well. And so far, it looks like it's a great chance for us to service large CSP customers as well. With large CSP customer and BC PBS and the price together, our revenue will continue to grow very fast. And double-digit gross margin still in our plan is just take a little bit longer.

Final question is from the line of Brandon Nispel with KeyBanc.

Thanks for squeezing in taking the question. I think echoing the same comments around gross margins that looking at the guidance, it really implies 0% contribution margin. And so I think revenue growth is great, but I was hoping you could really help us understand what's on the other side of this, right, in terms of Help us understand what this business looks like from like a free cash flow contribution standpoint, as you guys scale it, because you can't just keep going down the path of lower and lower gross margins, especially when the revenue coming in, is that a 0% contribution margin, again, based on the midpoint of your guys' guidance?

So again, we believe that we can't name all of our customers, but I can tell you that we are bringing in some of the best companies in the world. And we believe that our first-to-market practice of being able to bring reliable and optimize solutions quickly to market will reward us well. And this has been our practice over the last 32 years.

And so we've consistently been first to market we have shown that we can grow quicker than the market at large. And we've also shown that we can bring customized solutions, which bring very good margins and very good returns to the bottom line. So we're staying with our game plan right now, the market is going through some new cycles with new kind of exciting new platforms coming out. We believe that this will pay off. So we're staying the course.

Keep our bottom line. Make sure, we keep our bottom line, make sure we continue to make more total profit every quarter, every year. With that as the phase for sure, when we have a chance to grow more market share, we try to grow more market share as well. But bottom line is mature every quarter, every year, we make more total profit.

Got it. And David, are there any like onetime costs with the design wins and the upgrade pushouts that fell into this quarter in terms of like onetime costs that you're absorbing in this quarter's gross margin guidance?

So you're -- in terms of the December quarter, yes, there are -- there's a lot of additional engineering costs and expedite costs and overtime costs that result from delivering kind of what would be twice our normal revenue run rate and scaling a new technology at what we believe would be 1 of the largest clusters in the world. So yes, there are a lot of extra costs that go into that and that we don't -- that we believe will actually prepare us for the upcoming quarters?

Yes. It's basically our first GiGA project. And hopefully, we can make it perfectly company. Understood.

There are no additional questions waiting at this time. So I'll pass the conference back to the management team for any closing remarks..

Thank you. Thank you, everyone.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.

Have Mike Staiger and Krishna here is from SMCI as well. Super Micro is here in the audience. So really excited to have Super Micro here.

Thank you, Mike, for coming to our conference here. I have a bunch of prepared questions that I'm going to go through. I'm going to leave a few minutes here for the audience, but I do request if you do have any questions, please raise your hands so we can bring the mic to you.

Mike, I'm going to kick it off. So again, thank you for coming to Citi's Global TMT Conference. You just reported very strong growth. I think it was up close to 50% for the year. The quarter closed sort of within range. When you sit here and you think about how demand has evolved for your company, let's say, a few months ago or even at the start of the year, there was a lot of cross currents. There was deep sea, there's tariffs, there's all kind of stuff. How would you say your business performed relative to your own expectations, let's say, the start of the year?

Well, Asiya, thanks for having us. Before we start, I just want to please refer to our cautionary statements with regards to the -- safe harbor statements with regard to statements on our website. So from that perspective, demand has been great. It's a new technology cycle in general. And we had a fantastic year in many aspects. We grew 47%. We grew our scale customers from 1 in '24 to 4 in 2025. We're seeing a continual evolution from a standpoint of our customer base where Neo clouds have been first and early. They've been growing quite rapidly. Enterprises are following on stream, and we're seeing a lot of sovereign activity as we move forward. So we're well positioned in the market.

And I think one of the things that just as demand shapes up, as the picture shapes up, if you think about what's going on, the hyperscalers have been soaking up quite a bit of capacity. They've been application optimized for AI, and they've been doing that in various different segments within their service offerings. And they have in-house engineering, they have chip design, they have network design, storage, they have everything, right? So from a standpoint of what Super Micro is doing is we are bringing in the AI element. We are bringing all of those aspects, including DCBBS to our customers that are beyond the hyperscalers. The rest of the market does not have these capabilities. So from a Super Micro perspective, we see demand evolving and we see the product innovation and expanding within our customer base across those 3 different categories.

Okay. Within each of those 3 different categories, like how is Super Micro positioned? Like where do you lead? Why do you lead that? Just if you can double-click on the competitive moat across those 3 segments.

So we have no legacy architecture basically to support on a go-forward basis. We're all about lowering the cost per watt per compute for our end customers. Charles is completely focused on the customer performance aspect and doing everything to make the systems more performative for the customer. And in the current context, with AI, performance power, all these elements are extremely important to the end customer, particularly the early movers, the early adopters who are limited funds, so to speak, from a build-out perspective and are being very focused with their spend.

So from a competitive perspective, if we can bring a better reliable system, one that uses less power, one that puts more footprint on the floor for them, initially, that's been a really big win. And you can see that from a standpoint of where our growth curve has been relative to our competitors and share numbers, et cetera. So that's the focus. And so as you think about what's going to happen next, we believe there'll be more Neo clouds coming into the fold. There'll be enterprises that are entering into the fold. They're already doing that through some of the larger Neo clouds that there are today, and we support most of those Neo clouds.

But there'll be application-specific and application-optimized solutions for the end market that we will be developing. So if you think about what Super Micro does best is we offer customers choice. We innovate almost every platform. We have almost every architecture platform available for end customers. And so it becomes a differentiation point at that level because some of our competitors are just focused on building, say, one particular architectural rack. And we're focused on the beyond, include the rack making that better, but beyond with other products, the inferencing products, et cetera. And this goes across not just AI, but general purpose compute as well. So we have a lot to offer our customers, and they know that, and we can save them money.

And the element of the data center building block solutions, we're bringing other components so that we can get the entirety of the data center delivered to the customer as opposed to customers like I just need a rack. And so it becomes a rack-to-rack price comparison. But if the customer needs more help, and we see many of them that are coming on stream, like I said, we can bring the hyperscaler experience to the rest of the market. So that's a product differentiator for us, and that helps customer wins, helps repeat customer business.

We have a very high repeat business with our customer base because we keep innovating. And we think that innovation curve is accelerating is an advantage from our perspective because we control the design, we control the manufacturing, we control the engineering. So the entirety of the experience, and we understand that with the customer. So as the innovation kind of accelerates on itself and leaves others who are still struggling to get the current generation into the marketplace. We're thinking several steps forward on what the customer will need eventually downstream.

And how would you characterize -- you talked a little bit more about Neo clouds, but we also have the sovereigns and we have the enterprises that are also adopting. The conversations, if you can, is there any differences at the speed at where they are in terms of adoption of these, not just on the rack stuff, but on the DCBS (sic) [ DCBBS ] as well across these verticals?

So what's interesting is, obviously, 47% year-over-year growth is amazing unto itself, right? So especially at scale going from 15% to 22%, and we see 33% in 2026. But the speed from a customer perspective is obviously fairly quick from a standpoint of what they want to do. There's many, many, many POCs. So that's kind of how you get to market, at least from some of the scale -- more scale customers. They'll trial equipment. They'll get specs right. So in this context, we're early days in the adoption of AI in general, right? So you have issues like power at the data center. The data center readiness, concrete is being important. You hear that all the time.

With respect to sovereigns, there's licensing elements. It's a factor, like have they had the licenses can they ship? Have they spec-ed out the data center, right? So that kind of goes back to what we are seeing what we're doing with DCBBS, where we can take -- we can retrofit a data center for them, bring the whole experience together. We have the leading edge from a liquid cooled element. So once again, it comes back to our ability to innovate and kind of adjust to the customer. So we have numerous customer engagements. So trying to balance that out in the context of supply in the context of the readiness from a customer perspective. And you can even throw financing for some of the less well-heeled or the start-ups where that's somewhat of an element.

We don't think that would be an element for some of the enterprises. We won't be an element for the sovereigns. But there's multitudes of factors that impact the uptake. But again, the speed of the uptake, we think, has been very, very good and very supportive of accelerated growth rates for ourselves.

Okay. And then AI, great tailwind for you guys, some of your peers as well, but it's also extremely lumpy. There's no -- there's transitions going on at the chip level and then all the various components that need to go to support the memory, for example, the cables, all that stuff. So just help us understand the level of visibility that you have and considering that there is so many -- so much lumpiness. And how -- what are some of the risk mitigation stuff that you do on your end, so you don't have like terrible margins as a function of the lumpiness?

So from that perspective, the variance quarter-to-quarter, I mean, it's quite a feat to put a significant amount of rack capacity on the floor installed, et cetera, for any customer, given the constraints of the supply chain we have different parts. If you don't have one piece together, if the data center is not ready, I think we had mentioned that we had one customer who last quarter had a design change. Something didn't get spec-ed out right or they wanted something changed. And so that kind of impacted what we're doing on a move-forward basis. So these elements are contributing to the variance.

And the other thing that I would mention is that it's very early days in this whole build-out period, right? And so -- and the adoption of the technology. So there's a lot of folks that have learnings about what they're trying to do before it becomes a mainstream product, so to speak. That said, there's multitudes of products and solutions being offered to the end customer and application optimized for vertical AI. You'll see Neo clouds that are focused on one particular vertical as we move forward.

So there's so much happening that it's hard to capture all that at one time against all the other factors that put variation in the results. But I think we've done a really good job of managing through that in real time. And again, our learnings from standing up some of the largest clusters one has driven enterprise inbounds from our perspective because they know that we have some of the best, most reliable equipment and our capabilities. So from that perspective, I think it's a really -- puts us in a really good position to take advantage of the expense that we will see in this whole marketplace so we can serve more customers.

Okay. All right. Data center building block, DCBBS, if I got the acronym right. Just maybe -- I know you touched on it a little bit earlier, but just help us understand why is it unique to Super Micro? If I talk to some of your peers, I think I hear some of the similar commentary. But just why is this unique to Super Micro? And how do you think it accelerates your growth? Why does it accelerate your growth? And I think you already touched base on maybe this sovereigns are still kind of trying to figure out the licensing issues, et cetera. When do you see that inflection happening outside of Neo clouds?

So we are very focused on the customer and giving the customer the best experience they can get to give them the best performance, the best reliability, the lowest cost per compute per watt. And the initial customer base of the initial early adopters was a big focus, right? We think that will still continue to be the focus to be application optimized in the enterprise, to be application optimized as we expand in the Neo cloud. So what we're trying to do is, like I said before, if you have the hyperscaler, they're doing everything in-house to serve those applications. And we have the ability to do the same thing for the rest of the market. And the rest of the market is really large.

And as they adopt that, there's a brownfield site that needs to be upgraded to air cooling -- excuse me, liquid cooling, but not quite all the way to full liquid, right? So we can bring some of those componentry into the mix for the customer. And we'll be adding more of the pieces of what the entirety of the data center is. So a customer can call us and say, hey, we need a data center in XYZ location. We'll be able to drop in everything that they need so that all the equipment arrives day 1, so they can turn on, they're online, they're ready to move and ready to roll. So incrementally, that changes the dynamic with the customer as opposed to a customer coming to us and say, look, I need x amount of racks of whatever architecture, what's your price? This changes the conversation. So it includes the service element.

It includes the engineering support because the service is a little bit different in cabling, which is a pretty -- the connectivity element. So we'll bring all those pieces. And we're building the back-end storage, whether it's going to be flash or whether it's going to be hard drives with our ISVs. And if you think about what we do with one of our VDI software partners, we build systems for their software stack and we're probably one of their better suppliers. So ultimately, over time, as the AI application rolls out, you'll see us marry that our stack or our data center stack, whether it's a mini data center or a large footprint. We'll be able to bring all those things.

And then it will be a differentiator in general, and we'll be able to serve the market. The market is large. It's obviously competitive, but we've always pushed the curve on technology and the technology curve continues to accelerate, and we're focused on staying in that zone.

And now you guys are very -- I mean, when I look at your OpEx ratio, it's like great. But just the introduction or the expansion of DCBBS as a growth driver result in increasing that OpEx?

I mean it's -- the pace is a little bit ahead of where we would like to be, but generally, with half the growth rate would be the growth in OpEx. So I think historically, the company has been very efficient. And that's the goal, that's the target to continue with that. So I don't think you'll see any outsized situations that change that parameter.

Okay. And then the same thing on free cash flow is this -- does this become a more working capital intense if you're having to host a lot of the components that go beyond just the rack? You talked a little bit about that. Does that become a working capital?

So I think in the early days, historically, there's been a little bit of a land grab and there's a little bit of a working capital demand from a standpoint of -- from serving customers. But as you probably well know, recently, we have improved the balance sheet significantly. I think when we reported last, we had -- a couple of weeks ago, $5.2 billion in cash. We entered into an AR facility that gives us a little bit more liquidity if we need it. We ran the business up to $22 billion off of $2 billion, I think, I believe, in cash. So we think we're adequately funded. That said, if we -- and I mentioned that we scale customers, we had grew to 4 in 2025 from 1, and we see 2 to 4 more coming into '26.

So from a timing perspective, 4 more scaled customers and the 4 scale customers we have all hit at once, it might change the conversation. But we think as we move forward, you see -- not necessarily Neo clouds, I was going to say sovereigns. As the sovereigns expand, we believe that they will be less -- they should be less capital intensive because they obviously don't need to raise funds. And so longer term, we think that we can get free cash flow close to net income, and that's the goal. But right now, it's about land grab, land and expand and market share and innovation. So we're focused on that element, and that's growing the size of the company, as you well know, the scale and scope of the company has changed dramatically over the past couple of years.

Okay. So I got lots of questions on that, your growth in your major customers. So it's great you brought that up because just help us understand what does the concentration look like today? Now you have 4 large customers. You're talking about 2 to 4 more in the current fiscal year. Where are these customers, maybe vertical geos? Are they Neo clouds? Are they enterprises?

I think it's fair to say that it's Neo cloud with maybe an enterprise in the mix. We think that there'll be an expansion of Neo clouds with existing ones, of course, and the sovereigns. So some context around that would be that we've heard instances where developers have been able to peg models that are being offered in service providers where they could run multiple test programs, and they've saturated systems. Context windows and reasoning models are too small. And if you want to expand those, obviously, you'll need more in the language model or the reasoning model, you will need more capacity. And so you see hyperscalers throwing capacity into Neo clouds, right? You see enterprises putting capacity into Neo clouds because they haven't yet to build out.

So you see this ecosystem where the more you use AI-enabled tools, the more the cloud-based service providers are going to expand. And if we start moving into -- and we are seeing that, we'll start moving into the inferencing element, you get this even more users that drive more demand within the large customers, but those ancillary customers continue to expand. So the whole footprint is at the cusp of just -- I don't want to use the word exploding, but I just did, but it's going to really -- it will really move the needle. So we see that ahead. And what we're trying to do is make sure that we have product for optimization for any one of those applications. So that gives us an innovation element and a solutions-based element that goes beyond just give me a rack, it's a different conversation, and that stems some of the Neo clouds, some of the enterprises and certainly the sovereigns.

Okay. All right. And again, from a geo perspective, are these -- I'm assuming this is not just a U.S. phenomenon. I'm thinking about these large customers.

There will be, I believe, you can obviously look at the filings, but one of them is -- they're going to expand across the...

Yes. Okay. Just wanted to clarify.

Especially we were talking about -- we've made some announcements with respect to some Middle East, Southeast Asia, Europe. I mean, there's activity is strong across the board.

Yes. But to the extent that they become a major customer this fiscal year, right, you feel pretty strong about that 2 to 4 customers.

Yes. And how that bakes out from a geo, we'll see.

Okay. All right. We're going to just see if the audience has any questions here. Please raise your hand. We have one here.

Do you have confidence that the inference-based models and some of these new expansion areas will be able to replace the large-scale data centers once those build-outs are completed?

Thank you for the question. I think it's a very good one. But I think the way we see it playing out, like I said, if the context windows are too small or will expand, then the core language model providers, the reasoning models, they'll just get bigger. And if they get bigger, the number of reasoning -- or excuse me, the inferencing element will expand as well because more people will use it. So I think if the user base expands dramatically, and we're already seeing that the token usage is skyrocketing. So this should gather steam. So it actually should support all sides of the business and the growth of the business should be pretty excellent.

You won't land on -- it's all inferencing versus it's all training and there'll be new use cases to train and there'll be specific training model verticals, et cetera. So it's -- like I said, it's early days, but that's the direction we see from the customer conversations that we're having across the globe.

One more here.

Could you just comment briefly on the kind of competitive situation with Dell? You had the early lead, but they've been ramping fairly fast on the relative side compared to you?

So from a competitive perspective, we feel very well positioned. Like I said, we're focused on innovating, focused on making the reference architecture from any one of our partners better, more performance-oriented, more power efficient. That's our complete focus. We control our design, engineering, manufacturing. So those elements are very underappreciated, I should say, from a competitive perspective. And so again, we have limited -- we have no legacy thought process in our mind. It's all about what the next generation is going to be, how we can bring more to the customer and to do it reliably and have really sound solid systems.

So we think those will support and continue to support our market-leading position and will increase the scope and scale of the company. Our goal is clearly to be #1, the #1 supplier. And we would argue that over time, if you look out 2 years, we will have the products that you will need downstream because we're focused on bringing those to market. And we feel very comfortable that we'll be able to -- we'll continue to be in a pretty great competitive position.

One more there.

Can you expand a little bit more on how you see funding in the case where you do need to do a more aggressive, I guess, working capital build-out and how you think about, I guess, issuing more equity of the facility you mentioned or even raising more convertible debt in the future?

Yes. So again, thanks for the question. I think from a standpoint of where we are today, we feel pretty confident where we are with the capital stack that we have and the access to capital. We've always been -- or we've tried to be very focused on not being -- not dilute shareholders. So from -- I think if there was anything to be done, we would probably need to leverage the balance sheet a little bit with maybe a revolver or something along those lines. That all said, there was a caveat earlier that if 4 scale customers all said, hey, we have new demands. and we had 2 to 4 more come into the book, we would have to think about how we would best position the capital -- our capital needs to serve those customers.

I'm not saying that's going to happen, but that would be the outside band kind of demand element. So I think we've done a fantastic job. The balance sheet is in great shape right now. That should support easily our ambitions for the year. And so we're in a really good spot.

I think -- since we are talking about competition, just on margins, I mean, I think they're hovering around 10% gross margins. So -- but they are down relative to the last few quarters. As you think about DCBBS, as you think about expanding your customer concentration to more customers, how could the margins move up towards the target model? Is that the scope for this year? Are we looking beyond this year?

So we definitely have our eye on that. But I think the mix is pretty important. So early days, large customers have a little bit more pricing power. There's a little more eagerness to try to serve a couple of people. Some of the competition need to get a footprint to say they're in the game. So very, very early day, a lot of pressure in that respect. What we're seeing as we move forward is more and more volume of customers, whether it's in the enterprise or some of the newer Neo clouds that need more help will bring more product or more services into the fold for them. And they won't have necessarily the same dynamics and they'll be more in line with where we have normally operated. So that should rise over time.

So it will be a balance. We're not saying that's going to happen. Obviously, we didn't say that was going to happen in the next quarter or the next quarter or 2, but we see that happening over time. And Charles was pretty adamant -- said, look, if we want to accelerate the growth rate, we could lower the margins pretty easily. But the focus is no. The focus is on a profitable business, serving a broad base of customers and becoming the #1 provider through innovation, through product, through solid customer experience.

Okay. And then I know liquid cooling, Charles talks a lot about Super Micro's moat in liquid cooling. Just help us understand about the adoption there, what's going on? What's your market share as it relates to liquid cooling? Are there certain customers that are perhaps adopting it faster?

So scale customers that have a liquid cooled data center already, obviously, are like #1 candidates. We've moved beyond the initial liquid cooling to DLC-2, 40% improvement across the board. We're taking all the heat out of the systems. It's always been in our DNA to lower the power requirements and to be thermally efficient, and that obviously enters into the liquid cooling equation. So we've been the leader there. We think that as we move forward, we'll be able to take, namely, 80% of the data centers might be just air-cooled environments, 20% might be liquid cooled environments. There's no data center that's being developed that won't incorporate liquid cooling.

So -- and obviously, liquid cooling customers have a little more rack concentration. So there's a dynamic there. But we're bringing better thermal dynamics in the HDX Series and the air-cooled series, whether it's a 300 or 200 to the market. We're doing that the same thing on the CPU side or the x86 platforms, we can liquid cool those. So as power becomes a constraint, has been a constraint, we are focused on delivering more power more efficiently. And if we can do that, and we have been doing that and continue to do that, then customers will say, well, I can save a lot more money by a Super Micro liquid cooled design than not. And that's a customer win and it's for us, and it should be margin accretive for us as well.

Okay. All right. Just on the guide, I think you guys talked about fiscal '26, which has already kicked off for you of more than 50% growth or roughly the math there. So what gives -- what are you seeing now? You've already guided. It's been a month, I guess, but what are you seeing that gives conviction in that? Is that based on backlog? Some of your peers do report that. I know you don't. But what kind of gives you conviction in that 50% year-on-year growth? Admittedly, it's not going to be a straight line, like you said, there's going to be some quarters would see a big uptick versus like the most immediate quarter that you've already guided to?

Yes. So from that perspective, yes, we don't give out backlog numbers. We have excellent visibility from our customer base. And from that perspective, I think we feel really comfortable where we think we'll end up from the end the year. So -- and it's based on our customer conversations, customers' initial order potentials, et cetera. So I think we're shaping up for another really good year.

Okay. Let me ask about lots of hurdles that are behind you that plagued you guys last year. I think you passed a lot of those. And kind of looking forward, I think that's what gives you conviction as well in the 50% growth. Where are we with all those recommendations that perhaps a special committee provided? Are there still things that need to be done? Do you guys feel like, okay, all those things are behind us now, and we're well set for the growth? Or could there be -- I think as Charles put it, some of those impeded some of your growth last year -- last fiscal year.

Yes. So you think about the 47% growth year-over-year was in the context of a new product launch from some of our partners or new product launches from our partners that were -- where the end markets were a little -- maybe they all went to the hyperscalers. So it was a little bit of an interesting launch, so to speak. There was the power constraints at some of the data centers, et cetera. So putting a 47% growth in the context of some of the administrative challenges that we had that we cleared, the capital challenges that we may have had that we obviously cleared now that we have significant -- so all those things look really good.

So '26, the road ahead looks a lot smoother from our perspective with respect to all the things that we need to do. So if you think about the size and scope, scale and the growth rate and the acceleration, we've done a lot of work on the people and processes element. And we're very conscious of like getting those right and taking the time to make sure they are right as we move forward. And certainly, some of the press likes to take shots at some of the things that happened in the past and relive those things. But we're focused on moving forward, we're focused on the customer. We're focused on the innovation element, and we're putting the people and processes piece in place, and that takes a little bit of time.

Okay. And then inventory, I know sometimes you end up with excess inventory, whether it relates to a prior chip generation, et cetera. How well is Super Micro now with all the processes that you've put in place to manage that kind of risk?

Yes. So that's a great question, and it's very forward-looking from that perspective. We are concerned with that, of course. We tend to take very little inventory risk and be careful about what we're going to place where it's probably a little bit more important now that we have multiple different platforms to go to market with. So we're not committing or making a bet on one platform versus the other. And that said, if a customer comes to us and says, look, we have a scale order here and it's a certain platform. We mentioned the platform decisions were impacting some of the things in the prior quarter where there could be -- we're going to do what's right for the customer, right?

So from that perspective, we're going to try to make sure that we don't have an overhang. And we had one a quarter or so ago, and it was modest. We didn't want to have that, but it was a modest overhang.

Outside of chips, what about some of the other components? I mean there's always supply-demand imbalances that are going on there. How does Super Micro manage that? Do you tend to do strategic buys on some of the commodities?

One of the underappreciated elements of the company is that our ability to source and source for a large amount from a global perspective and to have choice in the building block architecture where we can swap different components within the subsystems themselves. So we try to be very careful about what we're ordering, when we're ordering. So occasionally, we might do a strategic buy, but it shouldn't move the needle, so to speak. And we have a pretty good idea of what we need when we need it. But if we have a scale customer, there's a change, sometimes we could -- there could be an issue. But very, very carefully managed.

Okay. We have a little bit more than a minute to go, Mike. So I want to thank you, but I want to talk to you about what are investors maybe underappreciating or what would you like the investment community to know more about Super Micro?

I think the biggest underappreciated element is the fact that we're innovating at scale, and we're bringing new product. I think I've said this a couple of times through this discussion that there's a significant amount of differentiation with respect to the reliability, the cooling and thermal elements and all the things that we're bringing to our end customers is underappreciated from a Street perspective. So I think that the fact that we control the engineering, the design, the manufacturing and the innovation is very underappreciated. And I think one of the reasons that we're in the position we are today is because we're doing all those things quite well from the product -- at the product level.

Great. I'd like to thank Mike and Super Micro's management here. Thank you very much.

Thank you.

It's still good morning, everybody. Welcome to the KeyBanc Technology Leadership Forum. My name is Brandon Nispel. I cover IT hardware among many other sectors for KeyBanc. Thanks all for being here. This is a 25-minute fireside chat. We have Michael Staiger, Senior Vice President of Corporate Development with Super Micro. Michael, thank you for being here.

Hey, thanks for having us. Thank you to KeyBanc, and thank you for your coverage. I just want to like highlight. Please refer to our website regarding cautionary statements, regarding forward-looking statements, the standard legal disclaimer.

Well done. Let's just start. You guys reported earnings last week. Why don't you give us a quick recap of the fourth quarter?

Well, I mean, without getting into too many details, we think we had a pretty good quarter. We're within range. We grew -- for the full year, we grew 47%. We have lots of new customers coming into the fold. We talked about where we grew one customer to scale customer in '24, four in '25, and we expect to add two to four more in fiscal '26.

Got it. One of the things that's come up, and I think it's sort of unclear what exactly is, but a lot of answers to the questions was around Datacenter Building Block Solutions, right? Can you help us understand what that is for Super Micro?

Yes. From that perspective, you really have to take a look at what's going on in the industry, what's happening. AI is obviously on everyone's minds. Everyone's hearing about hyperscaler CapEx, and hyperscalers are like building out like crazy, building out like mad. We have a whole host of customers that are following suit neocloud, sovereigns and enterprises, right? So from that perspective, the hyperscalers have the manpower, the staff internally to develop systems across the -- for the full scale to offer these services.

Many customers don't have that capability. So we're moving beyond just supplying the system or the rack to the customer to the full suite of solutions for the customer so that they can get up and running in fast time, so they can offer the services to those customers. And those customers on the DCBBS, whether it's retrofitting air cooled to liquid for a data center that might not be ready and adding different componentry, different services, integration services, support, cabling and get full suites because those customers don't have those capabilities. And we're providing them for them as opposed to just being in a competitive situation where it's rack to rack, where there's a lot of noise on that front where some of the larger customers are just trying to build as fast as they can, get me as many racks as you can. And like I said, these are the customers like, can you please help us get those racks on the floor?

You sort of alluded to it, but how does this different sort of change how you guys operate and do business? Is this a big strategic lift? Or is it sort of a little bit more simple from an operational standpoint?

I wouldn't call it a big lift. What I would call it is that we've always been focused on performance, density, systems design, engineering, et cetera, and getting the best -- lowest cost per compute, per watt for a customer. It just happens to be in our DNA, so innovating on a platform. And as we move forward, these platforms are getting more complicated. So our ability to innovate and scale those innovations is starting to expand, is expanding.

And so from a competitive perspective, our focus is innovation. So we're a serial innovator. So if you think forward, what will things look like. There's some announcements today about the RTX 6000 for inference, right? So the market is focused on the AI platforms, like language models are getting built out. Like if you think about the context windows, they're too small, right? So as they expand, the training models are going to get bigger. But at the same time, you'll have more users on the inferencing side.

So we look at it in a holistic approach where we will deliver the best, most complete training platform, if you want to call it, with our partners. And at the same time, we'll have innovation that goes around that on the inferencing side. So we have a full set of solutions for the customer to optimize for the application. Those applications are starting to expand in use. And we heard this morning at your conference, a couple of users where one or two could peg one of the services by running a couple of models. Like that much capacity by one user like gives you an idea that the core AI systems are not built out yet or the training models aren't built out yet. There's a whole ecosystem, and we're focused on building that ecosystem.

Can you talk about sort of the higher value-add services within -- what is it? DB...

DCBBS.

DCBBS. Thank you. Like software services, how do you sort of implement more higher value-added services? And then talk, we've been there, how you expect that to translate into like gross margins, profitability for you guys?

So from our perspective, like I said, as we look at a customer and the customer is focused on trying to get up and running, we are trying to put together the pieces that they need so that they can -- don't have to rely on multiple vendors to bring that data center up. So it's a complete suite for the data center. In many instances, we're working with other ISVs like take storage, for example, and we'll do a special purpose-built back end, whether it's flash-based or a disk-based storage system with the partner. And if we can deliver that at the same time with the platform itself, along with some of the cooling elements, whether it's a sidecar, whether it's the rear door heat exchange, et cetera. Whatever that customer needs, we'll put that on the floor for them in record time and encapsulate services on that, so ongoing support. So when we do that, we won't be in a position where it's rack for rack pricing competition. So that will lift our margins up to the ranges that we talked about in the longer term.

Got it. Let's talk about revenue growth. Super Micro has been I think an industry leader, outpacing the industry from a growth standpoint. Just help us unpack sort of where you think you are from a market share standpoint, how you've grown over the years and ultimately taken market share.

So if you look at the historical element there, about $3.5 billion in '21 to $5.2 billion to $7.2 billion to $15 billion to $22 billion, and then we guided to $33 billion. Clearly, there's something there that is a huge value. Like the growth rates are strong because we're innovating for the customers. We're delivering the best platform for those customers, and we're giving the best cost per compute per watt. And then the extension of that will be to wrap around not just the core of that, but we'll wrap around more product into that and continue to expand our growth.

We feel like we're at early stages. And on a comparative basis, what we're doing is innovation as opposed to like can you just deliver a rack to us, and people are trying to be fast followers. Those innovations and the generations in our partners' product sets, which keep changing year-to-year. We're staying in pace with that. We have the capability of delivering it. We design -- we do the design, we do the engineering, we do the manufacturing. All these are in-house. We control all these elements, right? So we're able to flex faster.

Not only that, but the learnings from the prior platform will bring them to the next platform. And so people are focused on the reference architectures from our partners, but we're focused on not just the reference architecture, making that work the best, but we're focused on the reference architecture, how can we take the reference architecture and advance it, so it benefits our customer, so that we have a differentiated product, so that we carry that product forward. So it's kind of right now, we're in a land and expand kind of mode, and we've proven our metal. And by the fact that we've had large-scale customers that are relying on us for very important builds as we move forward, the enterprises and the smaller customers like, wait a minute, Super Micro has these capabilities, and I know some of the other players out there aren't innovating. So I can get the best solution and the best for the application that I want to deploy, so I get the best bang for my buck and deliver to my end customers.

So we're trying to help our customers do that, and it all comes around serial innovation, being at the forefront and controlling all these elements and keeping them in-house. So I think if you look at it that way and you look long term, we could potentially be like the largest supplier in the industry, and that's the long-term goal of our CEO, Founder.

Got it. You alluded to it, the company recently guided to greater than $33 billion in revenue in fiscal '26. It's over a 50% growth rate, an acceleration year-over-year. Can you help us understand sort of what you guys are seeing and what data points you can share that can help us get some confidence in that growth reacceleration?

So I think the historical pattern of what we've done is like should give people confidence that like the growth is there, right? The second element of that is if we had one scale customer in '24, now we have four in '25. We said that there would be -- we expect those customers to grow with us into '26, and two to four more would come into the fold at least in 2026. So that gives you the framework of like the expanse of what we're doing. So that's a pretty good understanding without being like Wall Street specific of like who, what, why and when. So we feel pretty confident that at least $33 billion is a great number and an indication of what we're growing.

So help me bridge from a modeling standpoint because you also guided to your fiscal first quarter '26, this is about 10% growth at the midpoint. Is this a steer function higher throughout the year? Should we just step it up right away in 2Q? How do you want to just think about like that?

So we didn't provide any specific linearity with respect to like how the Street would model the '26. What I can say is that with new customers coming into the fold, with the fact that we have neoclouds that are more, that are emerging, the fact that sovereigns are emerging, those builds and then parse that back with supply, timing, bill, et cetera. If they all come in at the same time, the numbers could move faster. So it's a timing element.

And so when we think about our business, obviously, we have to guide to the quarters from a Street perspective, but we really think about it in terms of like long term and the visibility that we have with the markets. And so at least $33 billion. So how that works out remains to be seen. You've seen variance in the quarter-to-quarter. Larger customers have a greater impact on things moving around. We talked about where we had a new scale customer or potential scale customer come back to us and say, "Hey, look, we need to re-architect this design to fit this one particular data center", which kind of altered the flow of revenues in the prior quarter.

So those things can flex the business model, makes it a little bit of a challenge. But if you think more along the lines of like where is the long-term direction going of, one, the industry; two, the fact that we're like the leading technology innovators in that industry, where we will be in '26, '27, '28 is going to be in a different place than it is today. I think it will be a much, much larger.

Sovereign seems like maybe the biggest incremental opportunity because you have some neoclouds as customers today. How do you sort of characterize what the demand outlook or opportunity is around sovereign? And you did announce a deal for up to $20 billion for DataVolt. Help us understand sort of what the sovereign opportunity is.

Well, as we've indicated in the past, we had numerous entities approaching us. So if you think about that customer set and what they're trying to do intercountry to leverage AI to be more efficient, whether it's at the government level or through their -- whatever industries they own, whether it's telecom, they've been coming to us. And when they take a look at Super Micro, they're not looking at Super Micro like how many racks can you give me today, right? They're looking at us and saying, "Hey, can you carry me through the product transitions that we've heard about into the future and support us? And can you help us set up and architect the data center, which rolls back to the DCBBS." And these customers also as well are fairly well funded as being government entities, right?

So it's a little bit of a deeper partnership. We've seen -- we have business in some of these particular pockets, and we expect some of those to turn on to be much larger. So it's an opportunity set that our partners are talking about. We're in the process of realizing those opportunities and developing products around to really help them out, which rolls back to DCBBS. There'll be more product elements to DCBBS that will be announced later on in the year.

So I think it's all coming to -- coming together, and it looks pretty promising from our perspective, which rolls us back to -- we think that in the two to four additional large-scale customers, it's likely that there will be a sovereign entity in that element.

And that should build over time outside of fiscal '26 into '27 and '28 as other sovereigns sort of develop their AI strategies?

Yes. And so you would think about where we are right now, it's like land and expand. Obviously, there's a lot of competition. But at the same time, land and expand and innovate at the same time, that's an arc of like pretty -- takes a high degree of intellect to do that on the engineering level. Roughly half the force is engineers, and they're focused on multiple different SKUs and products to bring this together to take advantage of our partners' technology so that we can serve the customer base. And the customer base is going to be much larger in the future. And the current customers that we have, the repeat nature of the customer where we're engaged with them is very high. So we're pretty comfortable on a long-term scale like where we're going relative to some of the things that some of the sell-siders might be saying.

Not you. Let's shift gears. Let's talk about gross margins a little bit. You guys just reported about a 10%, just shy of 10% gross margins. The company continues to sort of put out expectations to return to a 15%, I think, to 17% gross margin. Datacenter Building Block is part of that solution. What have been sort of the factors that have got us from the traditional level of gross margins back to today? And then how do you see that playing out sort of in the future to get back to the normalized rate?

So from that perspective, there's been a tremendous rush to try to put something on the floor, right? And everyone is saying and claiming that they could do XYZ or they can deliver racks. We think over time that those claims maybe tail off a little bit. We're focused more on the full suite for the customer and doing the best for the customer. So we're a customer-focused company or an innovation-focused company. So from those perspectives, the innovation element, if we can bring an advancement in any one of these reference architectures that's significant and unique, that's an instantaneous margin enhancement profile. We think we'll be able to keep gaining ground in that area.

So in the short term, there's been some pressure to satisfy some customers and customer builds. We think that will ease over time. We're not saying it's going to ease immediately, but the focus of the company is to get back to these levels. I think Charles mentioned like, hey, if we wanted to, we could grow faster, but they were lower margin levels. Now the focus is to have a very profitable business as we move forward and serve our customer base and expand our footprint. So that's a land and expand mode right now -- where we're at right now.

What are you seeing from your main competitors? Like are they becoming more aggressive from a pricing standpoint? How would you sort of characterize competitive environment and then impact on gross margin?

The competitive environment has always been aggressive. Like everyone knows that it's a competitive environment. What I think the disconnect is that they're not valuing the innovation element that is rapidly happening under the covers. So if you have to support legacy products, legacy applications, legacy software, you don't control the engineering, you don't control the design, you don't control the production. There's a disadvantage in that -- in the long-term element of sort of that business. So this platform business, AI business is going to evolve, is evolving. And we will be -- we're very well positioned to take advantage of that switch and change.

You're clearly trying to make some progress on gross margins operationally with DCBBS. One of the arguments that we've made is margins are sort of structurally moving lower. And it's almost just like a mathematical equation where the bill of materials in the overall server rack contains a higher cost of a GPU and so margins sort of just structurally move lower. What do you think of that type of thesis?

I mean that's a thesis that feels sort of evident in the numbers today. But what -- again, what is missing is what can we do to wrap around this core platform that brings that margin level to where we're comfortable -- more comfortable operating. And right now, as we garner and grab the confidence of these particular customers, as we move forward, our builds, our reliability, our systems design are the best. And when we add into the other products, we have already seen this by learnings. We think that we'll be in an even better position downstream. And so those factors will kind of wash themselves out.

Got it. The technology is changing so fast, too. I mean NVIDIA comes up with a new GPU every year, it seems. How do you think about sort of the company's inventory position in terms of -- you've had some inventory write-downs. How do you think the inventory position is? And how does that sort of speed of technology change play a role?

So I'll hit on the speed of technology first, because in the speed of technology and the changes, literally like quarter-to-quarter builds, they're not all the same, right? So the product is like we're delivering might not always be the same. So it's easy. The platitude is like you're making a widget, the widget cost X, and P x Q, right? It's way more complicated than that.

So we are managing through that. We're managing through the inventory element as well so that we have the right balance for the customer at the time because we don't want to be stuck with parts that we can't use. But at the same time, we're trying to be expansive to be able to offer the solutions to a broad base of customers.

And if you look forward, and we think that there will be some inference platform that becomes more standardized than a volume production where we have the volume capacity to like be very cost efficient, manage the inventory for that particular product and have that product line be super successful, whereas people might not even have it on the floor available yet, and we'll wrap that around with DCBBS. So it's a complicated challenge, but we've been dealing with this for many, many years and been very proficient at it. And so we have our eye on this, and we are expecting to manage that successfully into the future.

Any questions from the audience? Yes.

So you talked about cooling solutions as a special purpose built when you work with ISVs. But overall, how are your cooling solutions being adopted by your customers? Is there anything specific you can tell us about kind of how it evolves? And then also, is it like any vertical kind of specialties with those?

All right. Yes. So from that perspective, on the liquid cooling front, we believe we continue to lead the march there. Every system that we look at that needs a liquid cooling, like literally will have some sort of change element to it. We're constantly -- we'll have DLC-2, that's I believe we made an announcement with the HGX platform where we'll be able to bring a much more efficient cooling element to the platform. There's no impedance on the dielectric fluid that we're going to be using, that will increase the confidence rate of customers that are not willing to like use liquid cooling because they're nervous about some element of reliability.

So we have super reliable systems. We're making them even better. So we continue to innovate, like I said before. And the liquid cooling element of our solution is encapsulated in basically what the core of the platform is like we're core compute in the data center, right? And so we'll expand upon that, but liquid cooling is an element of the core compute.

So when a customer comes to us, he's is like, well, give us the compute platform, and we're going to go get the cooling somewhere else. Like they want it all wrapped up and together and integrated. So our ability to innovate and integrate the liquid cooling solution using DLC-2 in an advancement where we're taking all the heat out of the system, whereas before, we're just taking the heat out of the chips is more efficient. So a customer can get more watts on the floor, whether it's retrofit, air cooled, liquid cooled solution or whether it's just pure liquid cooled. So we're constantly making advancements on this front.

Got it. Another question.

If you have two to four or more large-scale customers, will you need to do another capital raise or those provide you?

Well, that's a great question because we ran a business in the prior year. We got the $22 billion -- roughly $2 billion capital base. So we have $5.2 billion in cash. We have access to $1.79 billion for the AR credit facility. So $7 billion roughly of liquidity should support future growth, and we're very mindful. Charles is very mindful of dilution, and we're going to manage that quite effectively. Part of that was in the convert, $2.3 billion raise. We bought some shares in to limit the impact and the capped call -- the conversion premium is like 81.78, so to limit the dilution. So we have a strong eye on that, and we have plenty of capital to address the needs of the customers as we move forward to support the $33 billion and beyond.

Got it. Any other questions from the audience? And with one, we've talked a lot about sort of the neoclouds expansion of that customer set, right, and sovereigns. How do you think about the enterprise as a big channel for you?

So the enterprise is a focus. We mentioned that on the call. The enterprise customers are fantastic. They tend to be really nice repeat customers. The ones that are technology forward happen to be our favorites because we can build to their needs. Like Tesla is an enterprise customer. There's lots of others under the covers. We have a lot of the enterprise customers are using the neocloud services to test out, right? So they know under the covers that Super Micro is powering a lot of these things.

So by virtue of our success with some of our neocloud customers and some of the other enterprise customers, we're well known. We're getting more opportunities, chances to bid. So we're scaling up the go-to-market strategy for the enterprise to offer those customers the solutions that we have. We give them the greatest choice. So one solution is no longer like a nest. Like serial compute, yes, sure, it's super commoditized, right? As we move forward, it will be a little bit different.

Each industry vertical has a different kind of use case. I think our largest partner suggested that. So whether it be digital twins, whether it be in the bio industry, drug discovery, there are lots of different use cases, and we're optimizing for each one of those. And we think there's a lot of opportunity. And those customers will need the DCBBS support that we talked about. At the same time, they don't quite have the scale purchasing power that some of the handful scale customers will have. So the pricing environment should be -- should balance itself out.

Margin, or margin accretive?

We should be margin accretive. Yes, absolutely.

Well, with that, we're just about out of time. So Michael, thank you very much for being here. And everybody, thanks for your participation.

Thank you.

Thank you for standing by. My name is Cameron and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. SMCI U.S. Fourth Quarter Fiscal Year '25 Business Update 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. [Operator Instructions].

Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the fourth quarter and full year fiscal 2025, which ended June 30, 2025. With me today are Charles Liang, Founder and Chief Executive Officer; and David Weigand, Chief Financial Officer.

By now, you should have received a copy of the press 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 is available to participants in the Investor Relations section of the company's website under Events and Presentations tab. We have also published management's script 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 first quarter of fiscal 2026 and the full fiscal year 2026.

These statements and other comments are based on management's current expectations and assumptions involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K for fiscal 2024 and other SEC filings.

All of 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 accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how companies management evaluates operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP.

In addition, a reconciliation of GAAP and non-GAAP 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 sell-side analysts. Our first quarter fiscal 2026 quiet period begins at the close of business on Friday, September 2025.

And with that, I will now turn it over to Charles.

Thank you, Michael. I will be covering our performance for fiscal 2025 and providing insights into our strategic direction for fiscal 2026. Our fiscal 2025 results represent a 47% year-on-year revenue growth at $22 billion. This growth reflects continue the strong demand for our AI and green computing solutions. Despite the 6 months cash flow impact from the delayed filing of our fiscal year 10-K and -- revenue recognition from a major new large partner.

Non-GAAP earnings per share were $0.41, down year-over-year from 50% last year, primarily due to the tariff impact, although we have taken measures to reduce the impact, and we will see their results. Allow me to go a little deeper at the June revenue shortfall in what was otherwise a stronger quarter. Shortfall stem from 2 key factors: a capital constraint that limited our ability to rapidly scale production and specification changes from a major new customer that delay revenue recognition because of new ad of some new ad features.

The capital constraints will no longer an issue after we filed the fiscal year '24 10-K and large customer orders are now slated for recognition in September and December quarters. Following close collaboration to align with the customers' update future requirements. Despite this circumstance, we remain focused on our strategic priorities, optimizing our solutions and capturing market share. Notably, the number of large-scale product and play customers grew from in fiscal year '24 to 4 in fiscal year '25, signaling strong momentum and continuing growth potential across our customer base. We are also on track to add a few more in 3 year '26.

We continue our leadership in AI platforms and infrastructure with a comprehensive portfolio optimized for latest GPU technologies, including NVIDIA, B200 systems platforms and AMD's [ M50 ] and MI355 GPUs. Our X14 and X14 GPU systems delivered back-to performance, supporting large-scale AI training and inventive workloads and enterprise computing demand with exceptional efficiency Notably, we were able to deliver our B200 systems with an industry-leading time to market to our customers. We are confident our B300 and GB300 solutions will deliver a similar, if not even better time to market and time to online advantages for customers, helping them accelerate their AI deployments faster than others.

To further simplify our customers' AI data center infrastructure deployment and time to online, we officially introduced our data center building block solution. DCBBS to the market last quarter. With our DCBBS, customers can harness our proven system building product advantage to adopt quickly to evolving market demands, especially in the -- to increase can replace AI product cycles. Our modular architecture enables faster customization, steam line production and reduce time to delivery and time to online. While also optimize quality, efficiency and of maintenance.

In most of the cases, customers who use our DCBBS can finish building a new -- cool AI [ Delta ] just 18 months is still 2 to 3 years when converting an existing data center or a warehouse to a high-density direct like cooling data center customer can complete the transformation in only 3 to 6 months instead of 12 or even 18 months.

We had just begun deploying rack-scale total sales with our DCBBS to a few key customers. Key components of DCBBS include LLC solutions, the [ 2A ], I mean like to air cooling. CPU, as per in CPU as well and -- powershare, battery backup, BBU, water or dry power solutions and the more are coming.

Our advance second-generation direct liquid cooling DLC 2 system reduced power and water consumption by up to 40%. While operating at nearly quite label around 50 deco. This enables superior performance with reduced total cost of ownership PO and total cost to the environment, TCE, for modern data centers. Several DCBBS components are now shipping or entering production medicine, supporting a growing demand for high-performance, energy-efficient data center infrastructure. equally important, DCBBS meets the growing demand for a comprehensive one-stop shop solution, including software-defined infrastructure, system management, AI workload optimization networking deployment and all different levels of services.

It allows cloud service provider to reduce both CapEx and OpEx capital expense and operating expense. Indeed, it delivers also great value to both AI focused and traditional IT data centers. By sims integrated DCBBS capability with our system and rec solution, we are not only enhancing customer value by also improving our profit margins. This shift towards higher margin and revenue stream is central to our long-term strategy.

We also start to strategically focus on the enterprise, IoT and the telco markets and initiative, we believe will improve both growth and net margin over time. In last 2 quarters, we made a significant investment to optimize our solutions for enterprise customers. introducing advanced server and storage systems tailored for hybrid cloud, AI application and edge computing workloads. This enterprise-focused strategy will continue for many years to come.

Super Micro has also launched and enhanced enterprise service program. delivering a comprehensive 27 global support for high-density, high-performance driven data center agreement based on optimize rack-scale architecture. Our IoT portfolio, including embedded systems and AG Services is gaining momentum across the industry, like manufacturing, health care, telco, smart city and AI applications. Additionally, we have announced a strategic partnership to accelerate innovation in AI and telecom solutions. By expanding into these higher-margin segment, we have diversified our revenue streams. And driving long-term sustainable profitability that will benefit our shareholders.

Our global footprint allow us to efficiently deplete optimize the solution or win with minimum tariff impact, especially after September quarter. With large and most manufacturing campus across the U.S., Taiwan, Malaysia and Netherland. We can deliver a comprehensive system and data center label building product and total solution to our customers directly and quickly. This robust global prices enabled us to respond to diameter regional demands support cost-sensitive customers seeking greater value, mitigate tariff exposure and maintain design, global supply chain. That's both edge and responsive.

Looking ahead to Q1 fiscal year '26, I anticipate revenue between $6 billion and $7 billion, driven by continuing momentum across our AI drag drive and play DCBBS, software and service business, which are delivering exceptional customer value and strengthen our probity. I'm especially excited about our DC BBS for the full fiscal year 2026. I expect at least $33 billion total revenue. supported by our expanding large and enterprise customer base, upcoming product innovation and robust DCBBS total solution.

In closing, I want to thank you our employees for their dedication, our customers for their trust and our investments for their continued support. We are excited about the opportunity ahead and look forward to updating you on our progress in the next quarter. David, please?

Thank you, Charles. Q4 fiscal year '25 revenues were $5.8 billion, up 8% year-over-year and up 25% quarter-over-quarter compared to our guidance of $5.6 million to $6.4 billion. Growth was led by demand for next-generation air-cooled and liquid-cooled GPU, AI platforms, which represented over 70% of Q4 revenues across both enterprise and cloud service provider markets. For the full year fiscal year '25, we reported revenues of $22 billion, representing 47% growth over fiscal year '24 revenues of $15 billion.

During Q4, we recorded $2.1 billion in the enterprise channel segment represents 36% of revenues versus 42% in the last quarter up 7% year-over-year and up 6% quarter-over-quarter. The OEM appliance and large data center segment revenues were $3.7 billion, representing 63% of Q4 revenues versus 57% in the last quarter, up 2% year-over-year and up 40% quarter-over-quarter. The emerging 5G telco edge IoT segment revenues were 1% of Q4 revenues.

For fiscal year '25, enterprise channel revenues grew 38% to represent 39% of total revenues. The OEM appliance and large data center segment grew 50% and represented 60% of total revenues. The 5G telco edge IoT segment represented 1% of total revenues. For fiscal year '25, we had 4% -- 10% plus large data center customers versus in fiscal year '24.

Server and storage systems comprised 98% of Q4 revenue and subsystems and accessories represented 2%. By geography, the U.S. represented 38% of Q4 revenues, Asia, 42%; Europe, 15%; and the rest of the world, 5%. On a year-over-year basis, U.S. revenues decreased 33%, Asia increased 91%, Europe increased 66% and Rest of World decreased 3%.

On a quarter-over-quarter basis, U.S. revenues decreased 21%, Asia increased 78%. Europe increased 196% and the Rest of World increased 53%. Q4 non-GAAP gross margin was 9.6% versus 9.7% in Q3 due to product and customer mix. For fiscal year '25, the non-GAAP gross margin was 11.2% versus 13.9% for fiscal year '24.

Our long-term goal is to gradually improve gross margins through providing complete data center building block solutions and focusing on the enterprise, IoT and telco markets. We also expect to benefit from economies of scale from higher revenues, cost-effective global facilities, including the new Malaysia manufacturing plant and customer diversification. The Q4 operating expenses on a GAAP basis increased by 8% quarter-over-quarter and 23% year-over-year to $316 million, driven by higher compensation expenses and headcount.

On a non-GAAP basis, operating expenses increased 11% quarter-over-quarter and 29% year-over-year to $239 million. The Q4 non-GAAP operating margin was 5.3% versus 5% in Q3. Other income and expense for Q4 was a net expense of $5.7 million, consisting of $28.4 million in interest income, offset by $22.3 million in interest expense and and FX other losses of $11.8 million. The tax provision for Q4 was $19 million on a GAAP basis and $37 million on a non-GAAP basis. The GAAP tax rate for Q4 was 9% and the non-GAAP tax rate was 12%. The GAAP tax rate was 13% for fiscal year '25 versus 5% in fiscal year '24 and the non-GAAP tax rate was 15% in fiscal year '25 versus 11% in fiscal year '24.

The Q4 GAAP diluted EPS was $0.31 compared to guidance of $0.30 to $0.40 and non-GAAP diluted EPS of $0.41 versus guidance of $0.40 to $0.50 due to lower gross margins and higher operating expenses in the quarter. For fiscal year '25, we reported GAAP diluted earnings per share of $1.68 versus $1.92 for fiscal year '24 and non-GAAP diluted EPS of $2.06 versus $2.12 in fiscal year '24. The GAAP fully diluted share credit count increased quarter-over-quarter from $622 million to $625 million in Q4, and the non-GAAP share count increased sequentially from 636 million to 638 million shares.

Q4 cash flow generated from operations was $864 million compared to $627 million in the previous quarter. For fiscal year '25, cash generated from operations was $1.7 billion versus cash consumed by operations of $2.5 billion in fiscal year '24. Q4 closing inventory was $4.7 billion versus $3.9 million in Q3. CapEx and investments for Q4 was $79 million, resulting in positive free cash flow of $841 million for the quarter. CapEx and investments for fiscal year '25 were $183 million versus $194 million in fiscal year '24.

During the quarter, we completed a convertible bond offering, raising $2.3 billion in gross proceeds before operating expenses and the costs associated with the simultaneous covered call spread and stock buyback. The Q4 closing balance sheet cash position was $5.2 billion, while bank and convertible note debt was $4.8 billion, resulting in a net cash position of $412 million versus a net cash position of $44 million last quarter. Additionally, in July, we executed a $1.8 billion facility, which allows for the nonrecourse sale of certain qualified accounts receivables to strengthen our working capital on a discretionary basis.

Turning to the balance sheet and working capital metrics compared to last quarter. The Q4 cash conversion cycle was 98 days versus 124 days in Q3. Days of inventory decreased by 6 days to 75 days compared to the prior quarter of 81 days. Day sales outstanding were 40 days compared to 56 days in Q3. Days payables outstanding increased by 4 days to 17 days versus 13 days in Q3.

Now turning to the outlook for Q1 fiscal year '26. We expect net sales in the range of $6 billion to $7 billion. GAAP diluted net income per share of $0.30 to $0.42 and non-GAAP diluted net income per share of $0.40 to $0.52. We expect gross margins to be similar to Q4 fiscal year '25 levels. GAAP operating expenses are expected to be approximately $329 million and to include $82 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q1 of fiscal year 2026 fully diluted GAAP earnings per share includes approximately $69 million in expected stock-based compensation expenses, net of tax effects of $20 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 $24 million.

The company's projections for Q1 fiscal year '26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 13%, a non-GAAP tax rate of 15.5% and a fully diluted share count of 631 million for GAAP and 644 million shares for non-GAAP. We expect CapEx for Q1 to be in the range of $60 million to $80 million. And for fiscal year '26, we expect net sales of at least $33 billion. Michael, we're ready for Q&A.

Great. Cameron, let's turn it over to a question-and-answer session.

[Operator Instructions]. The first question is from the line of Simon Leopold with Raymond James.

I wanted to get a better understanding of some of the bottlenecks or gating factors for sales. And what I'm looking at is we've got full year revenue outlook of $33 billion, so that's better than $8 billion a quarter. And we're looking at September being roughly $6 billion to $7 billion. So I would have thought that availability of Blackwells, GB200 could have given you maybe some more upside to September and a more linear outlook for the year, but this would suggest more of a back-end load. So if you could help us understand how you're thinking about the cadence through that fiscal year? And what are the bottlenecks? Or what are the restraints in terms of the September quarter and availability of the chips?

Yes. Basically, our business will continue to grow. Last year, because of the 10-K delay, we have some constraints. So we grew 47%. This year, we should be able to grow better than that. And you mentioned about be is some cheaper availability, some resource availability from vendor like NVIDIA. Last year, we had to wait and see. Basically, we believe the availability will be much better than the last 2 quarters. And that's why we estimated minimum $33 billion.

And by the way, our new introduction DCBBS that helps customers to build a data center quicker. Especially -- the cloud ready for time to online much quicker. So that's another factor we believe this year, I mean, 2026, we should be able to grow better than last year.

And is any of this related to customers perhaps waiting for GB300? Or is that not a factor?

Yes, you are right. Some customers always waiting for coins technology, that 300 -- GB300. So the good thing is we have a B300, GB300 pretty much ready to go. That's waiting for our partner NVIDIA to support us.

The next question is from the line of Ruplu Bhattacharya with Bank of America.

I have 2 of them. The first one is a higher-level question. Can you talk about management strategy for competing in the AI server market your focus on revenue growth and gaining market share? Or is your focus on margin expansion? And if it's both, then what gives you confidence that you can grow revenues and grow margins in this competitive market? And I have a follow-up.

Yes. Very good question. Yes, we can grow much quicker if we don't care about the gross margin and net margin. And that's why we introduced DCBBS center building block solution. That's a total solution to support the customer to build their data center quicker, better and also save money, more reliable and we provide info trial need, including on-site deployment, networking, cabling, all kind of service.

So we believe we can grow revenue, market share and profitability, especially our data center end-to-end software solution. So DCBBS plus all software needs, customer needs including service. So we sure are able to provide a better value to customers, not just price war.

Okay. For my follow-up can you talk about the opportunity with sovereigns. You announced an MOU at wall during the quarter. Can you give us your thoughts on expected rollout of that opportunity? And David what margin uplift should we expect from sovereign customers versus your existing customer base for 2 CSPs, I mean how should we think about the revenue and margin opportunity here?

Yes. So in sovereign AI, it brings us a very good chance. There are so many countries need to build their AI infrastructure -- and those countries, those people really appreciate our DCBBS data center investor solution. So we help them to design their AI infrastructure and help them build AIU such quicker and better. So we see a very good room very big room to grow in that area. David?

Yes. And Ruplu, on the gross margin side, we are optimistic that we will be able to sell more complete data center BBS solutions with sovereigns. And so therefore, we don't have enough experience to be forecasting specific gross margins. But we're very optimistic that with the additional offerings that we will have that there's upside there.

There are so many contracts, especially in Europe -- in Europe, in East, in Asia. So they're all really a great -- their AI infrastructure for their country. for their company. And we are working very closely with you there.

The next question is from the line of Ananda Baruah with Loop Capital.

Yes, Two, if I could, -- the first one is maybe a little bit more of a clarification. In the first 6 months of the calendar year, you guys saw -- as did the industry elongated a little bit elongated customer purchase cycles, first from the HCX from the HCX GB decision-making situation in the March quarter, then the B200, B300 sort of decision-making situation in the June quarter. Charles, it sounds like it's one of the first questions. I think it was to Sumit's question, you may have suggested it sounds like you were suggesting there may then currently be some B300 sort of elongated customer decision-making as well. So just to clarify, are you still going through, are we still not yet to normalize customer decision-making cycles? Because if that's the case, I think it's useful for us to understand that as distinct from what the organic demand backdrop may be as we go through the year here? And I have a follow-up after that.

Yes. As you know, NVIDIA have so many products, so many beta products, new products. And we are very happy to provide all the new technologies, new products and make them available for the market as soon as possible. Like just mentioned, we work with our partner very closely and make sure once the NVIDIA able to ship in volume, we can service customer quicker. And without DCBBS, we exactly optimized for customers' data center, including the large data center and middle-sized data center or even small size data center. So we are very happy to support a lot of middle size and small size AI infrastructure as well. That's part of Super Micro's advantage. We provide a total solution and make the customers drop much easier to build their AI factory, AI infrastructure quicker and better.

And just as a follow-up, can you guys, any context you can give us guys around the comment of large-scale data center customers expanding to 6 to 8 in fiscal '26. Sort of what flavor of customers might that be? When do you consider someone to large scale? And what market domains like those additional large-scale data center customers fit into?

Yes. Most of the large-scale AI CSP continues to have a strong demand. And we are prepared to support them as well. The testing is with a much strong cash flow now. So we are ready to support a more large-scale data center as well.

The next question comes from the line of Samik Chatterjee with JPMorgan.

I have to -- but maybe for the first one, you talked about the data center building block solutions and that it's still maybe a bit early for you to forecast gross margins on that front. But anything that you can help us in terms of what does a typical sales cycle? Or what are you expecting for the sales cycle on that front to look like, have any of your larger data center customers shown interest in data center building lock solutions. I guess the question more is, when should we start to see -- or what should we expect in terms of material revenues in relation to when that does come into the P&L what will be the earlier if you were sort of going and talking to your customers about these solutions now what should be our expectation on this front? And I have a follow-up.

Yes. Thank you. Yes, we officially advance our data center building provision last quarter. And now we have some product fully ready to ship. For example, AI computing power rec PMP that has been available for 4 years from Super Micro and kind of like CPU, right in though in rec CPU and kind of like side car, from liquid to a transformation kind of for those customers who like to go for like cooling, but do not have a cooling data center in tetra, we support them side car the product is ready to ship now like a power share and when GB200, GB300 go for rescale, I mean, use power share, we have a product ready now. And BBU, we have a product ready now as well and kind of like other tower for the cooling or dry power we are shipping now and kind of like on-site prime and networking, including cabling, ad kind of service. We have most of those components getting ready now. And we started in September quarter, right? And then we have ramp up in a much higher volume in December. And then for sure, we'll continue to grow in next year, March quarter and June quarter. So this data center building block solution eventually, we have someone to build their AI factory infrastructure much quicker much energy fee and also save mine. So we are very excited for our DCBBS solution.

Got it. Got it. And for my follow-up, you mentioned the investments that you're making on the enterprise opportunity or edge opportunity as well I mean assuming some of those are better margin opportunities in the data center building block solutions related to your business currently on the sort of where you -- around this 9%, 10% gross margin right now. Do you see an opportunity still to get back to the long-term targets that you had on the gross margin of 14% to 17%? Or like are these new opportunities necessary big enough and at a margin high enough to get you back to that 14% to 17% run rate? Or do you think the expectations of investors should be at a maybe a more modest level in terms of what the gross margin rate of the company would be in the future?

Yes. Very big question. And very good question also. I mean, yes, enterprise and IoT, as you know, have a much higher margin and DCBBS service software, we still have a better margin. So we are growing in both directions. One is growing revenue and support a large scale data center at the same time growing enterprise data center total solutions and software service. So I mean, long term, I believe, 15% still our target and take how long it depends on the combination. So I believe, yes, the direction is still there. I mean we like to get back to our traditional 16%, even 17% post margin. Maybe you can add such.

Yes. I think that as Charles mentioned, we have been providing these services already. We've had customers with very large deployments that we've helped them in the build-out of their data center and with specific services. And so it's something that we're really focused on and we know that it will contribute to our profitability.

Yes. As a silicon value-based company, for sure, we are able and we'd like to provide more value to customers, not just hardware, not just high volume product, but given kind of service solution optimization and to make the customers drove much easier.

The next question is from the line of Michael Ng with Goldman Sachs.

I just have 2. First, on the greater than 10% customers for fiscal '25. I was wondering if you could just let us know what the revenue exposures were for those customers? I can appreciate we'll eventually get it in the 10-K, but any early color would be helpful. And then second, thank you for all the guidance on 2026. I was wondering if you could just talk about how we should think about gross margins for the full year is the first quarter gross margins that you spoke to, a good indication about how we should think about the full year.

Okay, Michael. So the 4 customers, which we'll refer to as A, B, C and D, not in that particular but 11% -- 11% and 21%. And as to your second question, we're not going to forecast annual guides, but I want to revert back to our earlier comments that we're doing everything that we can, especially we're very optimistic about these data center building block solutions. And we have -- we're very quick to market we think the those 2 combinations, DCBBS and our fast time to market is our best chances for margin improvement.

Yes, especially DCBBS, we are able to have a customer increase speed up their time to online, right, kind of traditionally, for example, 2 years we have them improve to spear to 18 months, 16 months. So a lot of customers are very interested to those service Charles.

The next question is from the line of Nehal Chokshi with Northland.

I have 2 questions. First one is, what is going to be the driver of the projected Q2 uptick to the September quarter revenue? And maybe that can also help us understand why you're guiding to no operating leverage, I believe, effectively the guidance implies about a flat operating margin from the June quarter, September quarter.

So the -- in terms of the customers, we have a lot of customers that are building out a really good deployments. And so that's what gives us a guide to the first quarter. So we've been shipping AMI 355X and GB300. And so we expect that to ramp in Q1. And that's really what's giving us our guide.

Yes. We are also gaining many more customers in Europe, Middle East and Asia now. So basically, near future should be pretty strong.

And why with the incremental $1 billion of revenue, we won't see any operating margin leverage?

Well, whenever there is a -- and changing over to these new platform technologies, there's always a little bit of a ramp for us. And so that creates a little bit of a production learning curve.

Okay. And then my second question is that the data center building solutions -- is that being pushed more as a discrete service or the value of that discrete service is fractional to Gen AI factory or is it bundled in Gen AI factory where it's end to drive a better margin profile for that Gen AI factory?

It has supported a team scale of data center -- doesn't matter generative AI or agentic AI or application, right, invention. So it's a solution that we will define pretty taste, we validate. So when you ship to customers, a customer can put together easily. It's kind of like kids player they go case, right? So kind of like it's very data in advance when customers receive easy to deploy and easy for -- go for online.

So basically, it's the latter of the situations that I had proposed.

Yes, kind of including computing power the reg decline, even the power -- the water power, dry power, the battery system power module, right? So we have everything pretty built and validated in that advance.

Yes. And as Charles mentioned, Nehal, the time delivery and time to online for our customers is critical because they have end customers that they're waiting for. So that's a huge selling point.

Yes. So is that center building block solutions at least going to be representative of 10% of the deals that 10% of the deal value that you're going to be doing in the September quarter?

It will be steadily growing. I hope very soon, it will be more than 20% or even more than 30%. Because so many people provide a system convenient power, but we instead not just a convening power but total solution, a data center or a cloud total solution.

The next question is from the line of Brandon Nispel with KeyCorp.

I was hoping you could unpack gross margins during the quarter. Last quarter, you had provided some adjusted gross margins based on inventory reserves. Maybe you could help us understand whether there were any inventory reserves this quarter and if you're expecting any in 1Q, including maybe potential impact from tariffs.

Yes. Thanks, Brandon. So we did mention a little bit about that last quarter. And what I would say is that they came -- they did come in as expected. However, we believe that that's not going to be the case going forward. So we think that we we're anticipating a stabilization in that area.

Yes, especially with our DCBBS and with our service function. So we have customers build a data center and make sure they go for online mostly, and that will kind of make customers been much more smooth. And those, I mean, it's good for our inventory control as well. That's our main best return product. So that will have that slow moving less product write-down as well. Yes. But we expect we will improve in that area.

Yes. And Brandon, with respect to tariffs, the situation is dynamic, we're actively monitoring the tariff environment. We know there's news coming out next week. If we have any updates, we'll share it with you. But we can only watch and react as every other business is.

The next question is from the line of Quinn Bolton with Needham & Co.

This is Shane Mally on for Quinn. My first question is on the recent export licenses for NVIDIA and AMD. Just curious to see how Super Micro is positioned to potentially support these deployments? And does the got embed any of these potential shipments?

Are you referring to H20...

Yes. H20, I believe that in the...

H20 -- yes, we're not anticipating selling those products at a quantities.

Yes, at least not in high volume for us, yes.

Got it. And then I have a follow-up, would you clear quick clarification question from, I think, Northland. But did you say that the data center building block solutions will be around 20% to 30% of total revenue in the September quarter?

No. I mean I will be maybe next year summer. So it will ramp gradually not immediately.

The next question is from the line of John Tanwanteng with CJS Securities.

First one, just on the data center building block solutions. I was just wondering what the gross margin profile looks like they're compared to the corporate average and what an incremental dollar of sales in that kind of solution adds to your gross profit?

Very good data center building product solution, I believe we are the first one. So we, the first company to introduce data center total solution with building block feature, so the profit margin, the value to customers, which we both are good. Much better than a commodity product. When you were to compete with many companies, that's the pressure for office margin, right? But data center building broad solution in Spain, we have much less competition.

Okay. Great. That's helpful. And then just on the Bz300 launch, do you expect to see yourself in yourself from competitors both pricing-wise and allocation-wise, when that reaches volume? Or is there how any reason to believe that you may see more of what you've seen in the B100 and [ B200 ] time frames?

We work with our vendor very closely, right? And so I believe our position will be second to none. So for sure, we will be a good chance once it's available from our vendor, we are very happy to promote quickly.

The last question is from the line of Vijay Rakesh with Mizuho.

Just a quick question on this on the $33 billion guide for fiscal '26, wondering what is contemplated in terms of revenues from the data award win that you announced.

We don't make a comment for a specific customer, but we do have a growing customer base in Europe and in Middle East. So we feel excited to grow business in the territory, Middle East, BB and I believe it will be a good percentage for Super Micro business to grow.

Got it. And then on the DCBBS, obviously, a nice move with the racks and enabling your go-to-market timing, I guess. Just wondering what would be the split of a full NVL72 rac versus HDX that you're shipping now? Or into next end of the year in the fiscal '26, I guess.

Yes, we started to ship something about now, kind of like, for example, the dip 2 air side car or a shipping now. And CPU we have been shipping for a while, right, including in the CPU, we are shipping now and BBU, we will start [ shippable ] power share leadership this quarter. And so a lot of parts, we've been shipping for a few months or ready to ship in volume and some others will be ready in the next few months or few quarters. So eventually, it will be really a big product line. The goal is to support all major components for customers to build their data centers, their factory. So kind of to offer a one-stop shop, I went offshore not just to save customer time, but to make sure when customers put those components together, it will all and optimize for both efficiency, quality and cost.

That was our last question. Thank you for joining today's call. That will now conclude today's call. Thank you for your participation, and enjoy the rest of your day.