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SMCI
We are waiting for the company to file its 10-k Annual Report before we can fully access their results, however management have said(last week) that they do not anticipate any significant changes to that already reported. Here is a ‘letter’ from the CEO
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That’s good news
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Here are notes from the Super Micro Goldman sachs Communacopia Tech conference-Sept 9th.
David Weigand (CFO)
Okay. Thanks for having us and hosting us. So, before I begin, I wanted to say just a few points. Investors should refer to our cautionary safe harbor statement regarding risk factors and forward-looking comments on our Supermicro IR website. Also recall that we recently disclosed, we needed additional time to file our 10-K. We also said that based on what we know, we don't expect any material changes to our fourth quarter or full year fiscal year '24 results.Appreciate everyone's understanding that there's nothing more I can say on that topic at this time. We remain focused on delivering the very best products to our customers and executing on our business plans.
So let me go ahead and answer your question. And the answer is that Supermicro's success has really been founded on a couple of things. One is that we have -- we build very efficient systems. We build very reliable systems. And we also are very fast to market. We are really quick to market with new technologies.
And liquid cooling is really the latest example of that. We're shipping liquid cooled racks at scale. And this is at a time when the market is moving toward higher heat with GB200 with MI325x processors and GPUs that are consuming more power, generating more heat. And we're early to market.
So, it's really the combination of that -called building block solutions, which is really the ecosystem. Those are the things that have been attractive points for those customers to come to us.
Question-and-Answer Session
Q - Michael Ng
And you've talked about speed to market as one of the many competitive advantages for Supermicro, could you just discuss why Supermicro has had a history of being first to market with these new technologies? What is it about the engineering or the Company's history that supported these competitive advantages? And do you worry that some of these advantages may be dampened over time just as the competition intensifies, right? Dell is somebody who comes top of mind when I think about that.
David Weigand
So first of all, we're vertically integrated, which means that we do -- in San Jose, we do design, we do manufacturing, we do testing, we do rack assembly, all under one roof. And that allows us to be really, really fast to market. We are a very engineering-focused company and we have a very unique way of our approach to building server technologies.
And that unique approach is that we look at the server as an ecosystem kind of similar to maybe like an iPhone. We want everything in our -- in that ecosystem to work well with other components. So that way, when something new is introduced, it already fits into all of the other components. And so, we've always grown organically. That's helped us.
But now to the second part of your question, Michael, how does that affect us going forward? And the answer is that there's a lot of new technologies that are ramping now. So, you've got -- you have GB200(BLACKWELL) coming out. You have Gaudi 3 (INTEL), you have MI325X(AMD). And so, there's a we do best in a period when there is technology disruption.
And that's because, number one, we're very fast to enable those new technologies to come out with a complete platform of AMD, of NVIDIA, of Intel solutions. Number two, they're going to be high-quality solutions, and they're going to be customized. I mean, we have customers that we prepare 20 different types of servers for one customer. And so that's our specialty. AK- This is the difference between an OEM and SMCI as an ODM. Custom solutions. AWS/Azure will buy a lot of generic OEM NVL72/36 ‘iron’ (racks) however the use cases are so diverse, customers require a custom solution to deal with their specific task.
Michael Ng
And maybe you could expand on that a little bit. Supermicro clearly has a long history of partnership with all the silica -- semiconductor companies, all the compute suppliers. How do you think Supermicro is positioned to perform in the next wave of innovation, whether that be Blackwell or Rubin(due 2026)/Blackwell Next or other chips from AMD and Intel? And what does that mean for the financial profile, if anything?
David Weigand
Yes. We're always working on the next technology. So, we really value our relationships with AMD, Intel, NVIDIA, Broadcom and others. And so, we always want to be one step ahead, and that's -- we believe that we did that again with liquid cooling. It hurt us a little bit on the margin side as we ramped up on our shipments in the June quarter for our liquid cooled racks, but ultimately, it was the right investment because of where the industry is going. And so that's it.AK, margin took a ‘one-time’ hit to expedite DLC delivery to 3 core customers, we believe this is 1,000 racks in Q4/2024. Management have stated that margin will slowly revert to their guide range of 14-17% over the course of fiscal 2025 July 2024 to one 2025.
Michael Ng
Yes. One other industry dynamic that I would like your thoughts on is just the shift to what feels like more reference design or closed system architectures. Is that a meaningful shift that you're seeing in this upcoming cycle versus prior ones? And does more of the design coming from your compute partners mean there's less value add and more potentially for somebody on the server side?
David Weigand
Yes. So the ref's designs are kind of -- I think they're excellent. But you have to remember that not everyone wants a red Corvette, okay? (OEM vs ODM again!). Note ODM attracts more margin as it’s bespoke/custom. And a lot of people they want to customise their car a little bit differently. And I mentioned a minute ago, the fact that we have one customer who we build at least 20 different servers for. And that's not because they're not sure what they want. It's because they know exactly what they want because they have end customers who have different workloads. And so, their solution is built on our hardware and their software.
And so, with different workloads come different requirements and also different economies of purchase. So, in other words, you don't always need a Cadillac for the job that you need to do. So, what we're expert at is bringing about the best total cost of ownership metrics. And that means you're going to get the best cost per dollar per watt, and that includes taking reference designs and customising them to a particular customer's needs. So that's what we're -- that's what we think will happen. It already happened in DGX and HGX. We think it will happen again with other future technologies.
Michael Ng
Great. And on the last earnings call, Supermicro provided guidance of $26 billion to $30 billion of revenue for fiscal ’25(2024 was 14.7B). I was wondering if you could talk about the AI server demand environment that you're assuming to support that guidance. What gives you visibility and confidence into providing that outlook for fiscal '25?
David Weigand
When we talk to our customers about what they're doing, when we see some of the financing that's being put in place to build data centres around the world, we believe that there's still a lot of runway left and that demand continues to be very strong. So that's what gives us confidence in the overall market.
Michael Ng
And one thing that we all have to consider as we think about the server revenue outlook is how you're thinking about the generation of components and the timing of those components. So, what are you assuming as it relates to the Blackwell chips in that outlook? What are the potential offsets to the extent that there's more copper demand if there is some sort of slowdown on the Blackwell side?
David Weigand
Yes. So, we -- I think we said on our last earnings update call that we expected the first half of '25, which is the second half of our fiscal year that there would be -- that we would really start to ramp in -- with the GB200, with Blackwell. And so, in the meantime, we have really highly efficient, highly reliable H100, H200 liquid cooled racks that we can ship right now. And that we are shipping right now. So therefore, we think that there's still a lot of runway left on those products. And we've got the -- we have MI325X(AMD) coming out. And so, there's still a lot of products there that we can provide that customers want.
Michael Ng
And we started out this fireside chat, talking a little bit about Supermicro's investments in liquid cooled servers that may have impacted margins a little bit last quarter for the guidance in the upcoming quarter. Could you talk a little bit about liquid cooling as a margin headwind and when and why does that get better? And while we're on the topic of gross margins, I think you also called out customer mix as an impact as well. So, if you could touch on that, that would be great.
David Weigand
Sure. So, we mentioned, again, on our conference call that we shipped about -- that we couldn't ship about 800 million to a customer that -- whose data centre wasn't ready. And so those things happen, that would have been a better margin profile. So that hurt us a little bit on the margin side. In Q4, we weren't expecting that.
And then also, we encountered more costs than we expected in ramping up on large-scale shipment of liquid cooled racks. So, we had more expedite costs. We had higher component costs. We had manufacturing. We were still working out some of the manufacturing efficiencies, not of liquid cooling, but of shipping at large quantities.
And so that was really the challenge, but we've perfected that process now. And so we went right into Q2(we are in Q1 so this can only be a misquote but the CFO is saying margin is improving). And so the processes are much more efficient. Efficiency to me means a better cost profile. And so that's why we were able to give the guidance that we gave.
Michael Ng
That's great. And maybe just on that. So it sounds like some of the expedite costs and initial efficiencies of liquid cooling will fall off. You're probably getting a little bit of operating leverage, and it seems like the production process is better. Is that what gives you confidence around the 14% to 17% long-term gross margin outlook? Why is that the right range? And maybe you can talk about why the gross margin trajectory should get better throughout the year?
David Weigand
Sure. So Supermicro sits between the ODMs on the low side and the large server manufacturers on the high side. So, we sit in the middle as a producer of customised solutions. And so, we think that -- we still believe that we have the best value to our customers because of the -- again, because of that cost per watt or per dollar metric. And so that's why we set our target margins at 14% to 17%.
Now when we -- in the early stages of H100 when we were one of the first to start shipping reliable, efficient H100 servers, we started ramping with great demand because we were one of the few companies that could do that. So, we were able to command higher margins than even we expected as we went over 18%.
So now I think what you have is you have -- where there's a little bit of a pause here as we start -- as we await the new technologies to come out. And so that brings about a little bit more competition. But we think that in the long run, we still think 14% to 17% is a good target for us. And if you look back over history, we -- it's one that we -- that's achievable for us.
Michael Ng
Shifting gears and maybe talking about liquid cooled AI servers, Supermicro shipped, a bunch of liquid cool AI server racks last quarter. I don't think it's too controversial to say that it was the first to market to deliver something like that at scale. And Supermicro certainly talked about the strength in the market share there. Why is liquid cooling important even with copper-based AI servers? What portion of your sales are liquid cool today? And how big do you think that will get over time?
David Weigand
Yes. So we didn't announce what portion of it is, but one thing we said was that we grew from between the March quarter and the June quarter, we grew $1.5 billion. And we said that, that growth came a lot from liquid cooled racks. And the reason we think it's important even for the hopper is that we've always promoted green computing. And so, we completely believe that it makes sense to utilise less energy, less power by using liquid cooling. And by -- and we actually used highly efficient air-cooled designs to get the best performance that we could out of air cooled. And that had to do with the way we designed all of our products from the chassis up.
So liquid cooling is a natural extension of that. It's trying to lower your carbon footprint, green computing, it's been part of our DNA for a long time. We still promote that. But the market wasn't quite ready for that. And that was one of the reasons we even discounted it to try to get a foothold. And we weren't sure where all of the competition was, but we kind of found out that we actually had an edge, and that edge we believe, is going to help us because now where the market is headed is where you have to have liquid cooling.AK- Blackwell & Rubin need DLC because the new racks are 120KW+ which create a lot of heat and data centre heat management is expensive.
And so, guess who happens to be ready to ship liquid-cooled products, and others are going to have to do the same thing that we went through in terms of engineering, in terms of manufacturing and manufacturing know-how is very overlooked, but we're one of the remaining companies in the U.S. that is building things here on America, on U.S. soil because we know how to do that. And a lot of our customers like the fact that we make our products here, that we design our products here. And so, we're proud of that fact.
Michael Ng
And just as a follow-up on that, maybe you can talk a little bit about Supermicro's liquid cooling design advantages relative to peers. Is it more in-house design and in-house sourcing, obviously, there are a lot of liquid cooling component companies out there that may sell to some of your competitors like what's different about a Supermicro liquid cooled AI server versus someone else's?
David Weigand
Sure. That's a fair question. So, there's not a lot of products we could compare that with on a scale basis. But one thing I can tell you is that we put the same effort or maybe even more into our liquid cooled design as we have all of our products. And that is we design them carefully and thoughtfully to make sure that they are compatible with all of the other products in the Supermicro ecosystem. That means that we can prepare liquid cooled racks for AMD products, for Intel products, Gaudi products for -- and NVIDIA H100, H200s. So, it's really the same level of care and design. And we believe that that's going to carry -- it's going to carry us in the future.
Michael Ng
In response to a lot of the demand that Supermicro has been seeing, the Company has been investing in production capacity expansion, including with the new facility in Malaysia. My understanding is that production in Malaysia is supposed to come online in November of this year. Could you talk a little bit about what that ramp in production looks like? And what's the best way to think about Supermicro's capacity, whether that be in revenue terms or rack terms, whatever you think would be most helpful for the audience here?
David Weigand
Sure. So, we had said that we have a rack capacity of 5,000 servers per month. And then, we went on to say that 1,000 of that was -- we used to say 1,000 a month capacity per month for liquid -- of that 5,000 was liquid cooled. So now we're actually at 1,500(AK-per month which is 4,500 racks per Q), note DLC racks are dense and use high end systems. racks are $2-$3million each. In July, Charles said that we were at 1,500 liquid cooled rack capacity. That doesn't mean that we're shipping that amount. That just means that's what our capacity is.AK- a clarification. The company is on target to meet DLC capacity of 3,000 racks per month by June 2025-see below he confirms this
So to your question, we have a site in Johor, Malaysia, which is about 25 minutes away from Singapore. And we're very excited about that site. And we believe that it dovetails nicely with the demand in Asia for AI computing, and it also gives us a chance to lower the cost envelope in a lot of areas.(AK-throughput will allow for operating leverage where largely fixed costs get applied over an ever increasing output) And so, we want to produce liquid cooled racks in Malaysia, but that's not going to start there. But that's where we eventually want to go. And I think we've announced that we're going to increase by our fiscal year-end, June of '25, we'll increase our liquid cooled capacity up to 3,000 racks per month.
Michael Ng
And just as a point of clarification, when we think about the 5,000 rack capacity and the 1,500 on liquid cool, is that including Malaysia? Or is that kind of the current today?
David Weigand
That's the current today.
Michael Ng
Okay. Got it. Could you touch on the working capital requirements and whether or not Supermicro potentially needs to raise more funding to support customer demand?
David Weigand
Yes. So, we -- last year, we more than doubled our revenues. We went from $7.1 billion to almost $15 billion. And by the way, our profits went up 87%. So, we needed more capital clearly to take our inventory levels up to $4.4 billion at the June quarter in and take our accounts receivable up to about $2.7 billion. So, it absorbs working capital to carry those figures. So, we did have to do some equity raises.(AK-Dec and Jan 2024)
But now we believe that we're an IG profile company(AK-he means Institutional Grade). And as such, our goal now is to try to utilise our balance sheet to get unsecured lines, unsecured funds, and that will help us much better than some of our historical methods of borrowing money, which were basically on asset-based lines. And so, we think that the next phase, we want to move to using debt as for working capital.h.
Michael Ng
Let's talk a little bit about customer types. On the last earnings call, Supermicro had talked about being hyperscale ready. And I was wondering if you could just clarify where Supermicro's position is right now as it relates to hyperscale customers.AK-MSFT/AMZN/GOOG/ORCL size customers). I'll define those as the big four versus next-gen hyperscale companies, which are obviously this group of large and emerging group of CSPs.
David Weigand
Yes. The definition of hyperscale is definitely changing right now because it's really the companies that are providing massive amounts of data and storage to its customers with the ability to scale. And so, yes, as you mentioned, Michael, there's an emerging group of companies that have stood up and that are building data centres first in the U.S. are now around the world, also over in Asia and in the Middle East. And in Europe, there are former Bitcoin miners and others that are standing up AI as a service, infrastructure as a service at large scale.
And so yes, the definition of a hyperscaler has started to evolve a little bit because you have some companies now that are really handling some very big customers. A lot of data. And in some cases, they're taking some of the capacity requirements of some of the other hyperscalers. So, they become like a -- they're kind of a quasi hyperscaler.
So, then you've also got some companies with the generative AI models, the large language models, they are building, and we're shipping to some of those customers that are building the largest -- some of those customers that are building large clusters in the world. And that is going to be in providing generative AI solutions. Companies are often now doing a sandbox, enterprises are trying to build out their potential use cases for AI using a CSP(cloud service provider) i.e renting GPU’s from AWS/Azure.
But eventually, they may decide to build their own data centre. And that's what -- one of the things that Supermicro is moving towards is what we call data center building block solutions. And that is we want to help customers to design their data center properly, utilizing liquid cooling, which means that they can use less CapEx to buy less.
They can also use -- they can also save money on OpEx by having less electricity requirements. And remember, if you need a 20-megawatt data centre, if you are using liquid cooled racks in there, it's going to make a huge difference in your density and how many racks you can get into the data center and also in what your power requirements are. So, we want to be able to assist our companies with our data centre building block solution products to help them to maximize their green computing element of data center usage.
Michael Ng
I think it's been well publicised and reported on that Supermicro is one of the key AI server vendors for the xAI Memphis Supercluster, 100,000 GPU (AK-this would be approx 1,500 racks at 2.5M each and is the largest operating in the world today. MSFT plan to commission a 1 million GPU cluster at the end of 2025) cluster, was xAI the 20% customer last quarter? Anything you could share about demand trends from that customer? And how would xAI be characterised when you think about the customer segmentation that Supermicro lays out?
David Weigand
Yes. So, we try not to talk too much about our customers and let them speak to that. But I can say, but I think in terms of how we characterise customers, we have three verticals. We have a 5G telco edge product vertical. And then, we have an enterprise vertical. And then, we also have a large data centre and OEM appliance vertical. So, the large data centre OEM appliance, the OEM appliance is really like a Nutanix where they take our server, they put their software on top, and they provide a solution in their case.
And we have other customers that use our servers as an OEM appliance to provide cybersecurity solutions, kind of a zero-based trust cybersecurity product. We -- and so that's a good business model for us because customers are buying from us quarter after quarter. Then we also have customers like Intel, that use the enterprise vertical. They're buying from us. We designed a very unique, highly efficient server for them back in like 2016, 2017. So, they're in the enterprise vertical.
And then, you've got the -- kind of let me jump back to the OEM and large data center. Then you've got customers that are just providing AI as a service. They're providing a large data centre. And we also have a lot of customers in that category as well. That vertical has done very well this year.
Michael Ng
We just have a couple of minutes left. I was wondering if you could end with a more big picture outlook, what are Supermicro's strategic priorities in the next three to five years? Do you expect Supermicro to look more like an ODM or an OEM or somewhere in between?
David Weigand
Yes. So, I mean, our goals in the next five years are really to help our customers maximise their data center experience, number one. Continue to provide customised, differentiated solutions, high performance, high reliability, optimized for the customer's particular workload and application. And we -- but we want to provide end-to-end total solutions. And so, we view ourselves in a unique category of -- not we're not a CM and also, we're not yet a large server in the large server category. But at $15 billion, not doing too bad. But we really want to provide our customers with the very best product and the very best experience that they can have. And we have some of the most demanding customers, too, and we're fine with that.
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Are these guys any closer to filing the accounts
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Hi Ducati,
By definition they are closer but precisely when that will be is unclear. What we do know:
- Their review has been in-progress, 7 weeks now.
- Management have previously said they do not expect to find anything material.
- The law requires them to disclose anything material when it is identified. It is speculation however one would assume, after 7 weeks they would be aware of anything material.
The question today is, what are the risks vs rewards.
The stock has already produced stellar returns (realised). We have actively managed the position, both in terms of realising profit and managing the carrying weight in light of the 10-k.
Here is a business in the front row position of a secular shift in related technology. They are the Nr1 supplier in DLC, a product made for Blackwell architecture. When we say risk/reward, the stock is depressed and their valuation very very low. The downside is they grow 100% in the next 12 months and if they don't expand margin, earn $2.5B, sitting at a multiple of 10. The upside is they grow a lot more and put these filing/perceived control issues behind them.
We feel given the realised position and our current holding, the risk/reward assessment puts us firmly in the wait and see category.
Regards
Adam
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I should add they have a final red line to file being 27 Nov. Their quarterly earnings could be announced from Monday next week.
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Thank you Adam ….really appreciate your info on these companies
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Their value will be driven by gross margin and operating leverage. Revenue growth in the medium term is a given. Just under 15B to June 24. Wallstreet expected $24B to June 25 but we think it will be at least 35B. Access to Blackwell will determine that however it's only a matter of time before they start really firing. Will they generate $50B in a fiscal year, soon. We think so. Will margins return to 14-17% range. We think they can so the first sign of this will be this quarters earnings-management said they'd improve-in my mind this is key in the process to rebuilding the foundations.
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Hi Adam, I notice there's a loss/recovery case growing against SMCI. I would expect if material this may also be having an impact on recent valuations? - see below.
Super Micro Computer, Inc. Investors: Please contact the Portnoy Law Firm to recover your losses. October 29, 2024 Deadline to file Lead Plaintiff Motion
LOS ANGELES, Oct. 23, 2024 (GLOBE NEWSWIRE) -- The Portnoy Law Firm advises Super Micro Computer, Inc. ("Super Micro" or the "Company") (NASDAQ: SMCI) investors of a class action representing investors that bought securities between February 2, 2021 and August 28, 2024, inclusive (the "Class Period"). Super Micro investors have until October 29, 2024 to file a lead plaintiff motion. -
Ambulance chasing lawyers-it's nothing new. They will have a very hard time proving their case.
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The only thing holding the stock price down is the 10-k filing. I would expect them to file by mid November. It is worth noting that they can not file their Q1 10-Q until they file their 10-k.
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The only thing holding the stock price down is the 10-k filing. I would expect them to file by mid November. It is worth noting that they can not file their Q1 10-Q until they file their 10-k.
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See other thread content
dingg
wrote about 2 hours ago
last edited by dingg
#1
Auditor has resigned.Looking like the rumours were true, damn
A Online
Adam Kay
GLOBAL MODERATOR
wrote 22 minutes ago
last edited by Adam Kay
#2
The auditor, EY has resigned. But this appears to me to be more about a stand off between them and the Board. EY have found nothing after a very long review. As was discussed some time ago I pondered, will they try and re-audit ‘years’ of accounts. The 10-k needs filing. They can’t file if EY want to keep looking back.If you read the 8-k it is clear, nothing has been found which would require the AR to be restated.
In any event I can confirm that the IC materially reduced our Smci holding (many weeks ago)to where is is no longer a significant holding. We did this to protect from such an event.
A Online
Adam Kay
GLOBAL MODERATOR
wrote 18 minutes ago
last edited by
#3
Any further posts please refer to original Smci threadA
Adam Kay
moved this topic from General Chat
about a minute ago
A Online -
Smci announced Q1 ‘business update’ date, Nov 5th.
FYI, they can’t report q1 formal results until the 10-k is filed for y/end hence the terminology. I can imagine that caused some friction with EY.
