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SAN JOSE, Calif.--(BUSINESS WIRE)-- Super Micro Computer, Inc. (SMCI), a Total IT Solution Provider for AI, Cloud, Storage, and 5G/Edge, today announced that it will provide a second quarter fiscal 2025 business update on Tuesday, February 11, 2025, at 5:00 p.m. ET / 2:00 p.m. PT.
The stock is up 10% AH on the news.
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More news coming in on SMCI.
Supermicro Ramps Full Production of NVIDIA Blackwell Rack-Scale Solutions with NVIDIA HGX B200
The company has allocated a portion of its total rack production in San Jose to the HGX B200-whatever that capacity is, they are now in full production and utilising all of it.
The stock is up about 10% on the news. We expect plenty of SM news over the next 3 weeks.
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More information in coming out on SM's new DC system. Offering multiple vendor CPU and unique configurations which the company developed with Nvidia. Offered in Air Cooled, Liquid-to-Liquid(L2L) and Liquid-to-air (L2A).
Clearly SM is still very close with Nvidia which is a significant positive. Big day next tuesday with the Business Update-hoping to receive some positive news on the audit/filing and of course a guide for Q3
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Looking forward to see what Smci have to say in their scheduled announcement this evening, the stock has been powering along in the run up over the last few days
.Well north of $40 now and just below its brief peak in early December. If the news is good and if they can file audited figures successfully by the end of the month they maybe could be back on track?
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Hi Steve,
I've spent a lot of time on SMCI-in particular, the last 2 months.
Management will speak tonight and no one knows exactly what they will say. However the evidence suggests it's a positive. The stock price in isolation is just moving with sentiment, which, can often be completely wrong. Clearly the 'shorting' that cratered the stock is now being covered-clearly those short position holders fear good news will drive the stock up further and expose even bigger losses(for them). This week is a classic short-squeeze.
I believe the filings will be made on time and without material adjustment.
I believe the company had weak points over some minor governance requirements such as independence re the CEO having too many roles. You often find that when a company, started in a garage with some wires and duck tape from radio shack(I jest) and grows in a 36 month period by 400%.I believe Hindenburg took advantage of the apparent weakness and spread malicious and completely false rumours-the then auditors(EY) got spooked and demanded the accounts be reviewed (for 3 years) thereby delaying filing and sealing its fate. The lawyers arrived and told the company to say nothing. An information vacuum took hold and every miscreant on wall street had a field day.
As I have said before, the founders own 25% of the company and had $12B wiped off their net worth. They didn't sell shares at $122, so why would they do anything to hurt their business.
The big picture here, putting all of the above to one side, is very simple. DLC. It's a critical component in the accelerated compute industry. SMCI leads by far. They have the best solution, the most capacity(today), so if big tech want to build the best data centres now, they must do business with SMCI. The market is wrong about Dell and HPE-they produce nothing. All of their servers come from Foxconn and to a lesser degree, Wiwynn, QCT.
I believe SMCI is working on Xai Colossus phase 2. I think there is high probability SMCI are working with Meta and possibly Stargate. I believe they have orders exceeding their current DLC capacity-which is very large btw. I also think it's a sellers market given demand/supply imbalance i.e margins can only improve.
If the company becomes SEC compliant I see no reason why the 'stock' can not revert over time.
A reminder, just 1 year ago they were reporting 2.5B quarters, in September they guided 5-6B and similar in December-whether that was customers being nervous or the known slight Blackwell delay, we don't know. With Blackwell now firing I would like to see a marked increase in guidance. A material step change in their production and am looking for quarters this year exceeding $10B coupled with better margins (14-17%). Id also like to see a net income margin back at 10% and growing. They won't guide 10B tonight but we should see more than 5-6. 8 will do
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With investing the key consideration is 'Risk vs Reward'. There were risks with SMCI, clearly, however the rewards were potentially much greater, when considering the stock price of $26 just last Monday. Here was a company , if we assume zero growth was still earning $2B net but a mere $15B Mcap. A company, dominant in an industry growing at 50% p.a. We believed we held a material margin of safety (the risk of being wrong and paying too much).
Awaiting tonights update with keen interest and i'll post something tonight to summarise the key points and what next.
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The CEO had a filmed interview (fire-side chat) with Reuters in early December. I noticed this interview was put on-line by SM only 2 weeks ago. In the interview the CEO spoke of becoming compliant, on time and discussed the significant growth ahead. Now maybe I'm reading too much into that. The timing was interesting. Complete radio silence and impending business update and they release a positive interview(CEO makes big statements again), which if the business update was in anyway negative would only expose them to further risk. In other words I read this as a big positive.
We will soon find out
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The Smci call is still ongoing. Lots to unpick tomorrow. The stock is ranging 42-43 after hours. Confirmed filing will be on time without material adjustments. Company accept filing delay impacted current quarter but note, once filed they will resume very significant growth. Access to capital being the main reason. Without sec compliant books banks won’t lend. Reconfirmed margin expansion.
Overall happy with what I’m hearing. And please note, the investment committee last Monday approved an increase in Smci holding ‘by’ 20%. We purchased new shares Monday prior week for 26.
The guide for 2025 June y/end is 25 billion(2024 15b) with conservative estimates for the July 2025 year following of 40 billion (emphasise very conservative).
I think the company has redeemed itself and the next 6 months will reveal a lot more. We go into that period with considerable gains supported by low multiples. -
Over this morning i will post excerpts from the call(very long) and a lot of detail. Only when you get under the hood can you see interesting points. Like the special project they are working on but being subject to an NDA can't tell us yet what it's about. hmm either Meta Louisiana or Stargate. It's not Xai as there is no secret what's going in there.
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I with then discuss margin and why it can only improve.
Why they are guiding 5-6b for this Q not $8 but will be running at 8-10 in the next 6 months.
How the non filing has wounded them temporarily
Why this company has a bright future and i believe the stock is undervalued -
I'm sure those with an agenda will write articles pointing out all the negatives they can think of. The reality is the non filing has hurt them on several fronts but the facts are:
It's done and dusted
They will file on time
Nothing has been found. There are no prior year adjustments incl 2024 year end(June)-Zero
There is a net $40M adjustment to Dec regarding an inventory provision but that is 100% normal. A provision or estimate is subject to assessment right up to filing date(no filing yet for the 10-Q) so clearly, looking at the figures now, management feel a larger impairment provision be applied. It's nothing of any significance and these movements normally roll Q to Q. It's non cash and could reverse in subsequent quartersThe bottom line is, our holdings have an avg cost of around $23 today and given the company's own 3 year target is $100B revenue with margins reverting to historical trends, that would suggest $10B net income. I like that margin of safety!
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Ironically they found $46M in revenue which they should have recognised but hadn't-so much for cooking the books
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A quick back story
Revenue/Operating income:
2020 $3.3B/86M
2021 $3.6B/124M
2022 $5.2B/335M
2023 $7.1B/761M
2024 $14.9B/1,266M
2025 $25BE/? Est and to June 2025
2026 $40B (guide) fiscal year starts 1/7/25As of today, Q1, Q2 quarterly filings (10-q) are outstanding today together with the 24 year end(june) 10-k
The company said last night -we will file by the deadline of 25 February. I have no concerns over this and am confident it will happen. This issue is put the rest.
The guide for Q1 and Q2 were in the 5-6B range. Pretty much flat as is the Q3 guide Jan-April. Why is that. There is no question the late filing caused some customers to delay projects, coupled with a technology shift from Hopper to Blackwell however this needs to be put into context. $15-$18B, $16.5B at the midpoint compared to all of last year(14.9) with one quarter remaining and if the full year guide is to be believed, that quarter needs to be over $7B and as high as $8.5B.Volume Blackwell has not been allocated yet(to them) but it's coming-I would also speculate that the company can't afford to buy a lot as they are preserving cash. The first chips always go to the hyperscalers anyway- to build what is called Big-Iron. The super powerful cloud provider systems. These will be Nvidia reference designs built by Foxconn. SMCI do not get involved in this business because it's very low margin. SMCI specialise in custom solutions-their designs, which run specific LLMs or designed to perform a specific task and naturally there is a different mix of CPU/GPU/DPU,HBM. SSD/DBX base command/DGC cloud/ spectrum X-it's complex
And often forgotten DLC is primarily a NEW data centre product because it is far more difficult to convert an old DC to liquid cooling that to install from a blank canvas. The company said, many new DC's are just about ready and that makes perfect sense. You don't build 1m sq feet in a quarter but we know many are coming on line this year.No filed accounts =no banks can touch you. Once they file late Feb they will have access to all the money they need. You can see how the late filing really did throw a spanner in the works. But ok, the stock is now on its knees and the question being, is the business permanently impaired-No it is not.
Margins are not great-they are ok but not 15%(they are 11-12). Why? It is clearly linked to 3 temporary factors.
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The late filing and the added expense to investigate, mitigate and report on time. This could have cost them 30M extra spend.
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Preparation for Blackwell. Significant R&D has been expended to prepare for the technology transition. But the offset revenue hasn't arrived in volume.
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Silicon Valley(S.V)was expanded to 20MW of power to handle 1500 DLC racks per month (you need power to test run large clusters, a unique SM advantage-racks are shipped ready to run). Malaysia is their brand new campus. A lot of money has been invested there and if you look at output, S.V is at 55% capacity and Malaysia which just came online is at 1% capacity.
Think about that. A massive factory staffed by 1,000+ skilled engineers(preparing for DLC) making 1/100th of the capacity. Just keeping the lights on costs a lot of money. In accounting terms we would call this very poor operating efficiency and all this cost is going to hurt your margin! All fixed cost e.g $20M per quarter can't be absorbed by, at a guess $40M in revenue at 15% GM. Right there is a $16M loss and when you look at total revenue of $5B with a gross margin of 12% (600m) that is 2.7% which is what is hurting them, clearly.
Conversely when Malaysia starts firing this is where we get Operating Leverage and rather than it being a drag, it actually acts as a fly-wheel, creating super-normal margins.
OK-I think that is credible thought on why we are flat today. Now to the future.
Management is developing a 200Kw+ rack for a 'special customer' It can only be one of a small elite group. Who needs a 200Kw rack. A single rack which consumes 200Kw/hour is frankly, mind boggling. I would guess Meta. And they don't want one, they will require thousands of them. I would estimate a rack this dense will 100% be DLC and will pack 100+ GPU and 50 CPU and cost somewhere in the $5-6M range, maybe more. The company won't discuss it further as they have signed an NDA. If it's not Meta then it's the Stargate project. Both are massive.
Management said they lead the market in DLC; technological supremacy and capacity supremacy. This is correct. The best solution-a total DC solution including cooling, software and chip level management. And with at least 2,000 rack per month capacity and growing to 3,000 pm by June(with a goal of 5,000 within 12 months) if you want DLC you must be talking to SM! It is not difficult to understand, just 1k racks per month at 4-5M each is 4-5B/month. Today we are at $5B revenue per Q!
Given the stock price and company valuation($25B). Given what we know about margin and the demand we consider SM to be an excellent long term investment and whilst the stock will be volatile whilst the short interest and speculators 'gamble' when they start delivering(I believe in 3-4 months), fundamentals will take over.
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I should also mention. SM always needed more funding. You can't take on a $10B project when you only have $4B of working capital. Today SM has no debt and $2B cash plus $3.8B in inventory. A very unleveraged balance sheet. Dell has a debt pile.
I just wanted to make the point that the late filing has nothing at all to do with the need to more capital. It only made getting it a lot more difficult. SM did amend the convertible notes last Q and gained +$700M from existing lendors but they will need quite a bit more. Maybe $2-3B more and they will likely use Equity in part. A bit of dilution isn't a concern. -
Few additional points.
DLC is the future for the simple reason, it saves up to 40% in electricity costs and electricity to run a massive DC costs billions annually. Today 30% of new data centres have chosen DLC. This is up from 1% last year. A massive increase. Demand is massive.
Super micro say they have 70-80% market share.
I would estimate, of known large projects:
Xai Colossus
Meta Louisiana
Stargate
Coreweave
and many many others we must be looking at demand in the 20k+ rack minimum, next 10-12 months. Just DLC and 70% of that is 14,000 racks. North of $50B. SM also have an air cooled rack business which is billions too. -
taken from the call transcript last night-CEO says, in his own words (english not first language)
Yeah, in last few years, our growth have been very strong, except our 10-K interrupt, right? So in that 4 months, 5 months, we suffered a 10-K impact. So, our growth will be slowed down. But we will fix 10-K filed in very soon. And cash flow won't be a problem anymore. So, the product is strong. Capacity here, customer is ready. So, I believe $40 billion forecast is a relatively conservative estimation.
......................................................This backs up the flat growth-they've been churning their working capital-banks won't lend, plenty of orders but can't meet them. The company is paralysed, a cashflow drought. To explain, the cash conversion cycle which is Inventory Oustanding + Sales Outstanding minus Payables Outstanding and to grow you need to either collect your receivables faster than you pay your creditors(not easy) or optimise ones inventory or borrow money. It's a lot easier when you have a big fat margin. Companies like this need ready access to debt and if you're non compliant you don't get much if any and if you do you pay a higher rate/fee.
I would expect all to be filed late next week. They’ll be the banks friend again. Remember even today they are highly profitable
