Super Micro Computer(SMCI) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Q4 2024 revenue reached a record $5.31 billion, a 143% YoY growth, with fiscal 2024 revenue at$ 14.94 billion, a 110% YoY increase [6] - Q4 non-GAAP earnings per share were $6.25, up 78% YoY, while operating margin was 7.8%, lower than expected due to higher hyperscale datacenter business mix and expedited DLC liquid cooling component costs [7] - Q4 gross margin was 11.3%, down from 15.6% in Q3, primarily due to product and customer mix, competitive pricing for strategic designs, and higher initial costs for DLC AI GPU clusters [18] - Q4 operating expenses increased by 15% QoQ and 75% YoY to$ 253 million on a GAAP basis, driven by higher compensation and headcount [19] - Q4 cash flow used in operations was $635 million, with closing inventory at$ 4.4 billion in anticipation of future growth [20] Business Line Data and Key Metrics - Enterprise-channel vertical revenue was $1.83 billion, representing 34% of Q4 revenue, up 87% YoY but down 3% QoQ [16] - OEM appliance and large datacenter segment revenue was$ 3.41 billion, representing 64% of Q4 revenue, up 192% YoY and 76% QoQ [16] - Emerging 5G, Telco, Edge/IoT revenues were $75 million, or 2% of Q4 revenue [17] - Server and Storage Systems comprised 95% of Q4 revenue, while Subsystems and Accessories represented 5% [17] Market Data and Key Metrics - US represented 61% of Q4 revenue, Asia 24%, Europe 10%, and Rest of World 5% [17] - YoY revenue growth: US increased 94%, Asia 437%, Europe 128%, and Rest of World 386% [18] - QoQ revenue growth: US increased 20%, Asia 66%, Europe 74%, and Rest of World 187% [18] Company Strategy and Industry Competition - The company is focusing on DLC liquid cooling solutions, targeting 25%-30% of new global datacenter deployments to use DLC in the next 12 months [9] - Supermicro is expanding its Datacenter Building Block Solutions (DCBBS), aiming to reduce datacenter build time from three years to two years, with smaller facilities or transformations taking less than a year [10] - The company is leveraging its new Malaysia facility, expected to start production in November 2024, to improve cost structure and shipping volume [11] - Supermicro is positioning itself as a leader in AI infrastructure, particularly in Generative AI training and inferencing, with a strong backlog and design win pipeline [15] Management Commentary on Operating Environment and Future Outlook - Management expects Q1 fiscal 2025 revenue between$ 6 billion to $7 billion, with fiscal 2025 revenue guidance of$ 26 billion to $30 billion [12] - Short-term margin pressure is expected to ease by the end of fiscal 2025, driven by high-volume shipments of DLC liquid cooling and Datacenter Building Block Solutions [12] - The company announced a 10-for-1 forward stock split, targeting trading on a split-adjusted basis starting October 1, 2024 [12] Other Important Information - The company faced a delay in revenue shipments of approximately$ 800 million due to component shortages, which will be recognized in the September quarter [7] - Supermicro is targeting to make DLC liquid cooling a mainstream solution, with over 1,000 DLC racks delivered to multiple customers [8] - The company is expanding its global manufacturing footprint, including new buildings and production capacity near its Silicon Valley headquarters [11] Q&A Session Summary Question: Revenue guidance assumptions and supply chain contingencies [24] - The company expects strong demand for DLC liquid cooling and Datacenter Building Block Solutions, with a target of $26 billion to$ 30 billion in revenue for fiscal 2025 [25] Question: Gross margin performance and sustainability [27] - The company is focusing on large-scale datacenter customers while maintaining its enterprise customer base, with long-term gross margin improvement expected from cost advantages in Taiwan and Malaysia [28] Question: Impact of NVIDIA Blackwell delays [29] - The company anticipates minimal impact from NVIDIA Blackwell delays, as it can provide alternative solutions like H200 liquid cooling [30] Question: Gross margin decline breakdown [33] - Approximately half of the 430 bps gross margin decline was due to customer mix, while the other half was due to higher supply chain costs for DLC liquid cooling [50] Question: Competitive positioning in liquid cooling [38] - Supermicro claims a 70%-80% market share in DLC liquid cooling, with significant energy savings and performance advantages over traditional air-cooled solutions [39][40] Question: Rack capacity expansion [41] - The company plans to increase liquid cooling rack capacity to 3,000 racks per month by the end of 2024, driven by strong customer demand [42] Question: Blackwell platform shipping timeline [46] - The company does not expect significant Blackwell volume until March 2025, with minimal impact on fiscal 2025 revenue guidance [47] Question: Working capital needs [54] - The company has secured a $500 million credit line and is exploring additional financing options to support growth [56] Question: Pricing strategy for liquid cooling [57] - The company is prioritizing market share growth over pricing, aiming to make DLC liquid cooling a mainstream solution [58] Question: Gross margin target range [59] - The company expects to return to its target gross margin range of 14%-17% by the end of fiscal 2025, driven by improved manufacturing efficiencies and higher-margin solutions [59][60] Question: Free cash flow and CapEx [64] - The company does not expect to burn$ 2.5 billion in free cash flow for fiscal 2025, as it focuses on balanced growth and leveraging its balance sheet [64][65] Question: DLC failure rates [67] - The company has optimized its DLC solutions, resulting in lower failure rates and improved datacenter performance compared to air-cooled solutions [67][68] Question: AI rack scale revenue mix [73] - Q4 revenue growth was primarily driven by liquid-cooled racks, with significant demand for high-density computing solutions [73][75]