Smci (SMCI) Q1 2027 earnings call transcript

Smci (SMCI) held its earnings call for the first quarter of fiscal 2027 on 3 November 2026. What follows is my machine transcription of the company's public webcast, made on 3 November 2026, and not the company's official text.

A machine mis-hears names and numbers, so where one reads oddly, the webcast is the record. This recording is not split by speaker.

Transcript

- Thank you for standing by. My name is Jen and I will be your conference operator today. At this time, I would like to welcome everyone to Super Micro's first quarter fiscal year, 2027 earnings call. Joining us today are Charles Liang, founder, president, and chief executive officer, Mark Long, chief financial officer, former chief financial officer, David Wiegand, and Michael Steger, senior vice president of corporate development. All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. Thank you. Michael Steger, you may begin your conference. - Thank you, Jen. Good afternoon and welcome to Super Micro's conference call for the first quarter of fiscal 2027. As you heard with me today are Charles Liang, founder, chairman, chief executive officer, Mark Long, chief financial officer, and former chief financial officer, David Wiegand.

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. Our calls being webcast live on Super Micro's investor relations website and will be available for replay until the conference call. So later to discuss your financial results for the second quarter of fiscal 27, content of today's call is Super Micro's property. It can't be reproduced or transcribed without our prior written consent.

During this call, we may make forward looking statements based on current expectations, including with respect to our business plans and performance ongoing market trends and future financial results. These are subject to a number of significant risks and uncertainties and our actual results may differ materially. For discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's earnings release. Our most recent form, 10K and Q, and the reports that we may file on form 8K with the Securities and Exchange Commission.

All of our statements are made as of today, November 3rd, 2026, and are based on information currently available to us, except this required by law. We assume no obligation to update any such statements. During this call, we will discuss non-GAP initial measures. You can find a reconciliation in these non-GAP initial measures to GAP initial measures and our prepare remarks, which is posted on our website. Our second quarter, fiscal '27, quite period, begin to the close of business Friday, December 11th, 2026.

With that, let me turn the call over to Charles. - Thank you, Michael, and thank you all for joining us today. Following fiscal 2026, where we nearly double our annual revenue, fiscal '27 is off to a record start, Q1 revenue reach $19.9 billion, between the high end of our pre-alencement and way ahead of our original outlook of $15 billion. This is a great achievement, and it will show more and more customers for our AI and IT total solutions.

- Mostly importantly, our data center building Brock's solution, DCPBS, central to this growth, driven in customer trust and preference, enhancing our profitability and creating a sustainable long-term shareholder value. Over 30 years, simple main goals focus have always been on delivering, optimizing total solution value to our customers. We will continue leverage our engineering technology, global resource and the manufacturing capacity. With high-ear to accelerate the customer's deployment, moreover, I'm glad that not just large cloud and new cloud, small cloud company, company and organization across enterprise, storage, IoT, and both country and corporate solving verticals, relying on and adopting with Michael's total solution every day.

We have executed our commitment to drive a higher, bottom line, profitability in Q1. And again, growth margin expanded by 330 basis points year over year to 12.8%. This expansion was driven by a hair seal, customer mix across enterprise AI and IT accounts. By both product nine, build on our system building blocks and the growing revenue contribution from our high-ear margin DCBBS mode. Including our DCBBS hardware, software and unique service stacks. This directory aligns with our strategic low map to build a sustainable, our digital growth margin model by delivering superior technology innovation faster TTM and TTP faster time to market and faster time to deployment and total solution value.

Proven over more than two years in real world, customer agreements, DCBBS delivers four key values that non-traditional server OEM and overseas CM can match. First, optimize TTP time to delivery by delivering factory tests rather than play a drug scale systems and DCBBS building block complete solution including data center management software directly to customer side. Second, optimize TTO time to online for shortening life compute readiness on quarters to months and further down to weeks. And third, DCBBS maximize the system uptime through building browser that eliminating thermal power, software and service bottleneck.

And number four, lower TCO by slashing energy consumption and facility downtime to accelerate and improve data center probability. Whether our customer are building giga-wah scale AF factory or deploying rapid single container path solution, simple mango DCBBS have build AI infrastructure faster, better, cleaner and at a lower cost to our customers. Because optimize hardware alone cannot run an efficient AI data center. Managing thousands of deep core GPU rack require intelligent real-time software orchestration. Super cloud composer, SCM, delivers SIMDs, drug scale management and full-of-stack hardware facility integration.

Super micro data center manager SDM provide concrete power and some more control from individual know up to flow building infrastructure for end-to-end hardware lifecycle management. And our Super micro operation manager, S-O-N suite, featuring director and developer console modules, enable experimental model and token as service with ease for L-O-N and agentic AI workloads. Attaching SCM, SDM and S-O-N directly to our DCBBS portfolio eliminates software regimen patients for our customers while driven higher value hardware category. Furthermore, SCM enhance co-home service now features.

AI driven new course diagnosis, significantly improving data center uptime and given our customer complete operational confidence. Equally critical to our total solution advantage is our new, expanded, global data center service organization. Here, our on-site deployment teams backed by our D-engineer and our where trend post the deployment service staff, work directly alongside customer teams through TR service offering to efficiently maximize the cluster uptime. By using automated elementary our service team continuously monitoring thermal power delivery and non-hairs in real time to solve a potential problem before they close time time.

While our dedicated on-site engineer and the deployment validation and immediately hardware maintenance, this proactive high-touch service model feels a bit of customer trust. Drive high value recurring service revenue and fulfill our highest commitment. Bringing complete peace of mind to our customers through high-quality infrastructure total solutions. To realize this and match police our solution efficiency, our global manufacturing footprint and scale adventing rapid. We are actively expanding our physical footprint with major projects underway in Silicon Valley and Taiwan.

That will add meaning of square feet of fully automated production space and our active service bandwidth. Furthermore, we are accelerating our containerized data center production in Asia and USA together. Our global manufacturing and service network put us on track to produce more than 8,000 over our orders, most of the powerful racks per month, including over 4,000 DLC racks by December. On the technology from Shibo Mango continues to lead the market across major city platforms. We are among the first to market shipping in India, Baira Lupin, and we are 72 racks with our DCPBS and DRC-2 liquid core stack.

We recently had also launched the NVIDIA Lupin and Baira Lupin CPU rack, and they are ready to ship now as well. By the way, our optimized DSX part solutions are also commuted for AMD. MS-35 and MS-35X perform a good demand momentum now still as we advance to the U.S. and MI-450 total solutions. Additionally, we are progressing in TRG-O-6 Plus but from alongside our new PAM, AGI CPU-based solutions, optimized specifically for agetic AI market. At the same time, we continue to explain our comprehensive age and IoT product portfolio while consistently lowering our storage product line, bringing real-time complete package of influencing capability directly to the intelligent age.

These new products accelerate our strategic focus on enterprise customers, as companies expand the tool for scaling agetic models. Enterprise data governance and high suitable inferencing workload. We recently announced several major strategic and patternless ships, combining Schipo-Michael's DCPBS with the World's Deep Intelligence Company. including Cisco, NetApp, Nutanix, and others. With addition on a TRG-O-1 partnership commission, we are embedding Schipo-Michael's DCPBS footprint deeply into the world's most trusted enterprise. I know some investors and market experts have recently raised questions and concerns about AI capital expenditure efficiency and return on investment.

Let me be clear, Schipo-Michael is uniquely positioned to thrive in this environment. For over 30 years, we have been focusing on the server and storage industry right here in the United States, no longer than almost all of our competitors. Building a mature, well-established domestic manufacturing and engineering footprint, that our competitor simply had to match. These steep U.S. heritage and combined with our unique DCPBS hardware, solarware, and service total solution. Directly, solarware, ROI challenge for our customers by optimizing TTP, time to delivery, TTO, time to online, and computing uptime, and energy efficiency.

Whether our customer are building massive T01 AI factory or people in enterprise-identical AI workload, Schipo-Michael ensure their capital investment can work into revenue faster and more costly recently than anyone else would believe. We are driven strong internal at this deep ring through continuous operational optimization, factory automation, and skill development through technology process and refinement and training. We have successfully reduced our inventory and production turned a long time from about 100 days to 74 days over the past three quarters.

Looking ahead, our target is to further streamline our inventory and production cycle down to 50 days over the coming quarters. It's not easy, but we believe we will achieve it. This ongoing efficiency optimization will continue to strengthen Schipo-Michael's cash flow working capital cycle and drive higher on the bottom line of profitability. As a matter of how competitive the market gets, more customer will allow the Schipo-Michael DCPBS that include data center end-to-end hardware, management software and end-to-end data center services.

Now, let's turn to our outlook for fiscal year, 2027. While overall demand and our growth momentum remain very strong across every firm. We must be recognized that key components shortage continue to impact delivery time line across the IT industry, even GPU. New customer program and strategic ecosystem partnership are ramping strongly, but we want to remain prudent about some key components availability and volatile pricing. Based on what we see today, we are anticipating our fiscal 2027 revenue target will be in the range of 72 billion to 82 billion.

That is about 12% higher than the target we said one quarter ago. Before I turn the call over, I want to highlight a few important leadership updates. First, we are pleased to welcome a long, long-time industry technology leader, Sasha Krishna Pura, to our board of directors, bringing deep data center operational experience and expertise to support our scary. Second, my senior theory, thanks to David Wager for his six years of CFO leadership during our period of massive growth.

We look forward to his ongoing support and contribution in optimizing our operation to a much bigger scale. Finally, I'm delighted to introduce Mark Rong, our new CFO who's dedicated, I guess 30, 40 years. Okay, and financial leadership will be a strong head for our next place over us. Now I will change what I call to Mark. - Thank you Charles, and good afternoon everyone. This is my first call with you, so let me take two minutes before we get to the numbers.

I've spent much my career in technology infrastructure finance, including as chief financial officer of a public company in this industry. What brought me to Super Micro is that the hardest part is already built. Deep engineering advantage, a real lead in liquid cooling and rack scale integration and a key position in the largest infrastructure build out of our careers. What the company needs now is financial capability that matches its engineering and operating capabilities. I'm excited to join Super Micro at this pivotal time and look forward to helping Charles and the team continue to deliver an expanding portfolio of innovative solutions to a growing global customer base, including some of the largest, most demanding customers who are shaping the future of the AI era.

To do that will require continued financial discipline, transparency, deeper engagement with stakeholders, working capital management and capital structure optimization, which will be my areas of focus. Now to the quarter, total revenue was $19.9 billion, of 298% year over year and 79% sequentially. That is above our guidance range of $14.5 billion to $15.5 billion and above the preliminary range of 18.5 billion to $19.5 billion we provided on October 20th. As Charles noted, approximately $2.3 billion represented deployments originally scheduled for earlier periods due to customer and data center readiness.

Excluding that underlying revenue was approximately $17.6 billion. AI solutions contributed approximately 71% of revenue, compared with 59% in Q4. Based on our current backlog, we expect AI related solutions to represent approximately 70 to 80% of revenue for fiscal 2027. Enterprise and channel revenue was $4.9 billion for 25% of revenue. Up 229% year over year and down 12% sequentially. OEM appliance and large data center revenue was $14.7 billion or 74% of 321% year over year and 167% sequentially.

Driven by production rants on several large AI data center design ways. The 5G, telco, and edge segment, while still small and relative terms grew significantly both year over year and sequentially. By geography, the United States represented 80% of revenue. Europe 11%, Asia 6% and the rest of the world 3%. The United States grew 771% year over year and 103% sequentially. While the US remains the largest market for large scale AI data centers, we are seeing growing momentum in other regions as large customers expand globally and governments and enterprises plan and fund significant AI data centers in Europe, Asia, and the Middle East.

In the quarter one large data center customer represented 44% of revenue, compared with 28% for fiscal 2026 as a whole. In our 10Q, you will also see that two customers accounted for 49% and 17% of accounts receivable at quarter end. I wanna provide more context for this. Concentration at this level is a consequence of the scale at which AI infrastructure is now being built. A single deployment today can exceed our total quarterly revenue from just one year ago.

We expect concentration to stay elevated while these build outs run and to moderate as our enterprise and sovereign businesses grow. What matters alongside the concentration is the quality of the exposure. So let me give you that. Deferred revenue increased by approximately $3.1 billion during the quarter, an overwhelming majority of which reflects customers paying in advance of delivery. Days sales outstanding improved from 59 days to 36 days. We recorded no material credit losses in the quarter. On large deployments we frequently require deposits and often build against delivery milestones.

You evaluate counterparty credit before committing manufacturing capacity and critical components. And we maintain a $1.8 billion receivables purchase facility that gives us flexibility on both cash timing and credit exposure. We have declined business in this market. On terms, we were not comfortable with. And in the current environment, I expect we will continue to make that choice. Non-GAP gross margin was 12.8%, that is 200 to 240 basis points above our guidance range of 10.4% to 10.8%. And 330 basis points above the first quarter of last year.

On a GAP basis, gross margin was 12.7%. It is also down 480 basis points from the 17.6%, we reported in Q4. And I wanna take that apart because a single factor explanation would be misleading. The key factor impacting gross margin was the Q1 AI revenue mix, which increased from 59% in Q4 to 71% in Q1. The customer and product mix within our Q1 business was weighted toward large scale AI deployments, which carried lower gross margins than the more diversified enterprise and channel business.

Benefits from tariff relief and lower inventory reserves during the quarter were largely offset by certain lower margin deferred revenues which were recognized during the quarter. I wanna be precise about one point because I know how the mix figures can be read. The sequential decline is not evidence that AI platform revenues lacks margin. It reflects which customers took delivery in which quarter. The clearest way to see the underlying trend is to look at the last two quarters together which neutralizes the deferral timing.

Across Q4 and Q1 combined, revenue was approximately $31.1 billion. And non-GAP gross margin was approximately 14.5%. For the same two quarters a year earlier, revenue was approximately $10.8 billion and gross margin was approximately 9.5%. On that normalized basis, revenue nearly tripled and gross margin improved by roughly 500 basis. We continue to demonstrate significant operating leverage. Revenue grew 298% year over year against an 89% increase in non-GAP operating expenses. GAP operating expenses were 477 million, up 67% year over year and 5% sequentially.

Non-GAP operating expenses were $384 million, up 89% year over year and 8% sequentially. The sequential increases reflect higher head count costs and research and development spending as we invest in multiple new platforms for AI data center and enterprise applications. Non-GAP operating margin was 10.9% compared with 14.3% in Q4. Here too, the two quarter view is more useful one. Across Q4 and Q1 combined, non-GAP operating expenses were approximately $741 million for about 2.4% of revenue. And non-GAP operating margin was approximately 12.1% compared with roughly 5.4% for the same two quarters a year earlier.

We intend to keep investing in R&D field service and our global footprint. And we expect operating expenses to keep growing well below the rate of revenue. Other income and expense was a net expense of $34 million consisting of $49 million of interest expense and other expense offset by $83 million of interest expense on our convertible notes and revolving credit facilities. The tax provision was $435 million on a GAP basis and $455 million on a non-GAP basis with an effective tax rate of 21.4% on both basis.

I would like to expand on some points made in the last earnings call regarding earnings per share because our capital structure now has a moving part that I do not think is well understood. We calculate earnings per share using the two class method which reflects the mandatory convertible preferred stock we issued in Q4. That instrument carries a fixed dividend of approximately $75 million per quarter and converts to common stock in June, 2029. Between now and then both the dividend and the allocation of earnings to that participating security produce earnings available to common shareholders this quarter by approximately $312 million in aggregate.

The absolute earnings per share were $1.75 against guidance of 89 cents to 98 cents. Non-GAP diluted earnings per share were $1.81 against guidance of $1.01 to $1.10. GAP basic earnings per share were $1.92, two cents. Now to working capital, which I think will help explain key elements of how we operate our business. A cash conversion cycle improved from 149 days to 97 days. A 52 day improvement in a single quarter. At our Q1 revenue run rate, that difference represents roughly $10 billion of working capital the business would otherwise have needed to fund.

A cash flow statement shows this. We used $434 million of cash in operations on 19.9 billion of revenue. For all of fiscal 2026, we used $6.8 billion on $39.1 billion of revenue. Capital expenditure in the quarter was $47 million. So free cash flow was negative $481 million against negative $7 billion for fiscal 2026. Let me break down the 52 days, including both the positives and the areas for potential improvement. Days of inventory improved 45 days to 74.

Days sales upstanding improved 23 days to 36 of by faster collections and by customer prepayments. Days payable outstanding moved against us from 29 days to 13, which consumed roughly $3 billion and reflects timing of payments to suppliers in a supply constrained environment. The largest single driver was customer prepayment. Deferred revenue increased approximately $3.1 billion in the quarter. Accounts receivable grew $3.6 billion and inventory grew $2.5 billion to support the revenue ahead of us. And prepayments funded most of that bill.

We expect the cash conversion cycle for the current quarter to be within the band of plus or minus 10% versus Q1, which enables us to appropriately manage our working capital while also executing against attractive market opportunities. We ended the quarter with $6.9 billion of cash and cash equivalents, bank borrowing and convertible notes totaled $8.6 billion for net debt of $1.7 billion compared with $1.2 billion at the end of June 4th. Inventory was $15.1 billion up from $12.9 billion, built to support the revenue we expect in coming quarters.

We are in compliance with all covenants at quarter end. On capital structure more broadly, we are starting from a strong foundation. A $5.6 billion we raised in June was raised specifically to fund the working capital behind the orders we are now delivering. As we identify high quality growth opportunities, we will optimize our capital structure to support them. And we will do that in ways that fortify the balance sheet without taking on unnecessary costs. That means matching the duration and the form of our funding to the working capital and the assets it supports and being deliberate about when and whether we access markets.

I will be transparent with you every quarter about dilution, securities and available capacity. We ended the quarter with a record backlog providing stronger visibility for the current quarter and the remainder of the fiscal year. Turning to guidance for the second quarter of fiscal 2027, we expect net sales of $19.5 billion to $21.5 billion and gross margin of 12% to 12.5%. We expect gap diluted earnings per share of $1.59 to $1.83 and non-gapped diluted earnings per share of $1.66 to $1.90.

That guidance assumes gap operating expenses of approximately $455 million, including approximately $102 million of stock-based compensation, which is excluded from non-gapped. We expect other income and expense, including interest expense to result in a net expense of approximately $58 million. Gap and non-gapped tax rates of approximately 21% and gap diluted share count of approximately $753 million and a non-gapped diluted count of approximately $769 million. Preferred dividends of approximately $75 million and capital expenditure of $70 million to $80 million.

For the full fiscal year, we are raising our revenue outlook to $72 billion to $82 billion from $65 billion to $72 billion. We expect full-year gross margin of 11.8% to 12.2%. Let me connect that to the quarter we just recorded. Key one included approximately $2.3 billion of ketchup from prior period deployments. So underlying revenue was approximately $17.6 billion. The full-year range does not assume that ketchup repeats. It does assume continued sequential growth in underlying demand and it reflects materially better visibility into customer deployment schedules than we had 90 days ago.

Our business continues to strengthen and momentum is building for fiscal 2027. Although we are dated by supply constraints and data center readiness and we are focused on disciplined execution, credit-worthy counterparties and expanding our higher margin revenue streams. I'm margin, I want to be straightforward about what the full-year range implies with Q1 at 12.8% and Q2 got it to 12 to 12.5%. The full-year range applies gross margin in the second half below the first half. That is a mixed effect.

We expect AI solutions to move toward the upper end of the 70 to 80% range as the large deployments in our backlog ship and those carry lower gross margin than enterprise and channel verticals. Within each category, we expect margins to hold or improve. What governs the range is not demand and it is not our ability to build. It is the pace at which customer facilities become ready to receive what we have already manufactured and the availability of key components.

The finding constraints on AI build-outs across this industry right now are land, power and data center shelves. We have better visibility into that than we did and we will update you as the year progresses. Let me close where I started. This was a quarter of strong growth with high-quality customers. Revenue nearly quadrupled year over year. Gross margin came in well above our guidance and customer prepayments funded most of the working capital needed to deliver it. Behind those results is a broad and innovative portfolio from DC, BBS, RAC scale and liquid school systems to enterprise storage, edge and software.

That positions us for the most demanding workloads and the widest range of use case in the AI build-out. My focus going forward is the one I described at the outset. Financial discipline so the growth is profitable growth, transparency so that you can see how this business works from quarter to quarter, including the timing effects that moves our number. Deeper engagement with all of our stakeholders, working capital management, building on the improvement in our cash conversion cycle this quarter and a capital structure optimized to support high-quality growth from a strong foundation.

I'm looking forward to meeting many of you over the coming months. Michael, we are ready for questions. - Great, Jan, let's pull for questions. - Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Katherine Murphy with Goldman Sachs. Your line is open, please go ahead. - Great, thank you for the question and great to connect. First, I want to ask just about the raised revenue outlook. Understand that land, power and data center shelves are the binding constraints here, but wanted to understand in your full year outlook and in your pipeline, what share of those projects do you have line of sight into the off-takers and the committed volume there?

And then I have a follow-up question. Thank you. - Yeah, I mean, as you know, the power and even GPU, some components show this, right? But because our solution outperforms the industry solution. So especially without DCPPS, DCPPS not just provide a data center hardware building block by software and service, help a customer build a data center quicker and also keep their computing power uptime much better. So indeed, we continue to gain more customer and gain market share.

So we feel pretty optimistic for our continued market share growth. - And then as a follow-up, could you talk more about the customer prepayments in the quarter and how we should think about that continuing to support your working capital efficiency? Going forward, is that something we can expect in the value that DCPPS and the market share gain strategy that you've talked about? - Yeah, as you know, I mean, that now has to flow a little bit tied to a lot of companies.

But at the Shibu Michael, because we have a better total solution, again, our DCPPS that attracted a lot of customer. So basically, we see a good slide. Most of our customers are able to pay us on time, and we feel very distorted to continue to grow our business. Madri, may I add something? - Yeah, I think the advantage, as Charles pointed out, is really around the quality of the customer base. So very large, credit-worthy customers who, you know, pay very quickly, they provide, you know, very strong cash flow for us.

But the broad customer base is providing more prepayments and that discipline enables us to fund a lot more of this working capital. And, you know, I think you should expect that to continue. So, you know, we feel like we're in very good position. The company has done a lot since they raised capital in the summer and since the cash conversion cycle has improved, so working capital efficiency has gone up substantially. - Yeah, as we can share, we improve our business in terms of cash flow in two areas.

One is we improve inventory and production turn-around time from about 100 days to now 70 days. And we believe we will be able to continue to improve that production and immediate turn-around time. Second phase. Second point, as Michael just said, we get in have a higher quality customer and those customer pay on time or even pay a quick turn-around. So, we are very sorry, but in this area. - Your next question comes from the line of Ananda Perua with Loop Capital.

Your line is open, please go ahead. - Yeah, thanks guys for taking the question. Congrats on the progress and Mark, welcome. I have, yes, two if I could. I guess the first one Mark is just on the growth margin and the way to think about the dynamics that are layering in through the balance in the fiscal year. Correct me if I'm wrong here. I actually have to hit the midpoint of your guide while down in the second half of the year, that's sort of a flat around 12% of the next three quarters.

So, correct me if that's wrong. And then really the question is is, you talked about AI mix up sort of being a factor in there. Could you share a little bit about inside of the AI, AI customer base, like what are the moving parts on the margins? I think Charles in the past has talked about improvement in AI margins sort of in the go forward and just interested to know what the dynamics and play are there as you go through the rest of the fiscal year inside the AI margins.

And I have a quick follow up. Thanks. - Yeah, I just share in last three quarters or four quarters, our production time, and also our production quality, your way dramatically improve. And that make our turn a long time quicker and make a customer happier because of our beta TTD and beta TTO have a customer time to all nine. So, customer appreciate that. Plus, our DCPBS software and service may have a customer folder. And beta quality customer, we continue to get more customer especially including the enterprise agentical customer.

So, those are positive impacting our business. - Yeah, and I did just to kind of build on what Charles said, in terms of the guide for the year, what you're seeing is we have a good line of sight and now the business is stabilizing and kind of has this foundation in this 12% gross margin range. With romance, we continue to diversify our customer base and our product sets to expand those gross margins further. So, the precise modeling, you're relatively close on your original question, but for us, the visibility is very strong.

And as Charles pointed out, the gross margin across all of our customer categories hasn't improved. That's really the important thing. And this is a function of what Charles was talking about in terms of our great engineering, our great product set, and the execution of the team. So, we feel like we're in a very good position at this scale and we see enormous opportunities going forward. - Yeah, I'd like to-- - Thank you for helpful. - Like our TCP is we provide a not just data center building product solution hardware components, but also software also have a customer kind of a keep up time.

So, almost become one of our abilities the most. So, customer like our product more and more customer like our solution. - That's really great context, guys. And the quick follow up is what's the reasonable expectation for opportunity with the CPU business, just with all the structural tailwinds as you go through the fiscal year here. And that's it for me, thanks. - Yeah, as you know, authentic AI is getting very popular. So, we get in lots of customer, including a lot of enterprise customer.

They are buying our CPU based solution, including our Intel CPU base AMD, including our Nvidia beta, right? Our Nvidia beta solution is ready and including our solution. So, we see a much stronger CPU demand now and looking for work. - Your next question comes from the line of Joseph Cardoso with JP Morgan. Your line is open, please go ahead. - Hi, thanks for the questions here and Mark looking forward to working with you. Maybe just for my first, if I could.

It sounds like in your prepared remarks, you're not including any more catch up or deferred deliveries in the guidance. But I guess maybe first question here is just, can you just clarify if there are still deferred deliveries that are remaining and just not embedded in the outlook? And then the second portion of that question is more as we kind of strip that out of the numbers, you're still kind of implying moderation and growth coming into the second half of the year versus the first half.

But maybe can you just walk us through the dynamics that are influencing that? And if it has anything to do maybe with the concentration with your largest customer here, maybe fading going into the back half. And then I do have a follow up. Thank you. - Yeah, I think the key point of us deferred revenue historically kind of looking back was that there was, this set of deliveries and deployments that had been delayed. And they had been carried over from track quarters.

In a typical quarter, you will have some revenue recognition based on deliveries and you may have one or two deployments that are delayed. But those were, that was a larger than typical amount of revenue that had been deferred. And when that was released, that caused, you know, a number of things. Revenue went up. And as we mentioned, that was margin diluted on an overall basis. But going forward, we don't expect the same types and the same magnitude of delayed deployments through the deferred revenue.

And most of the deferred revenue is either customer prepayments or, you know, we have our service and software revenue that, you know, we typically defer over a number of periods. - Yeah, the good thing is, you know, since we introduced the DCPPS, some of our customer and some of even our internal people, they just become used. So that's why they kind of have a certain argument about when to recognize. But now our DCPPS is a much more true of business.

So not just our internal people, now for many or without DCPPS, and customer understand which service they buy, which service they deny buy, so we should not cover that. So since they get in much career, much of a material. So that way I have, I will defer it in a revenue program. - Yeah, and the second question regarding guidance and flying moderation and growth in the second half, what you're really hearing is just our sort of range of expectations based on the supply constraints and trying to gauge where the data center readiness for large deployments will land us.

But as we mentioned in the prepared remarks, demand remains extremely strong, and especially the interest in the DCPPS product portfolio. - Nope, got it, very clear. And then maybe as my second one, just the tailing off of that a little bit. And maybe this is a two-parter as well, but you're talking about maybe shortages here going into or kind of the supply tightness, I guess, in terms of the total ecosystem. Can you maybe just touch on what's the most binding constraint as you think about the two Q and second half out?

Is it largely associated with the GPUs or is it other elements on the component side? And then the second question is just more around, obviously, within this backdrop of shortages, pricing has obviously been a strong element in terms of pass through. Anyway, you can kind of help us think through, as we think about your 27-out load time, I'm sure the growth is being driven by units as opposed to cost pass through. Thank you. - Yeah, very good question.

I mean, the reason why we have a conservative number for any new revenue, 72 to 82 billion, because we are concerning about some key components shortage and also a medical economy. So if the components shortage won't be a big issue, and if the medical economy is a health, then for sure, our second half will be much bigger than our first half. So we offer a show and that's why we are very optimistic to see our second half have a much better performance than first half.

And even as of the case, 72 to 82 billion becomes very, very conservative. - Yeah, and I think your point about the growth in ASTs really driven by the cost of key components that it's been going up, sometimes more than quarterly. Our outlook does not, for the second half, does not encompass significant growth in ASTs. So again, we have a relatively conservative approach there, and we're really looking at the details of customer deployments, what they need, which product sets, what our production capacity is, and kind of how to manage that.

And as Charles pointed out, our demand far outstrips the availability of key components. - Your next question comes from the line of Ruplu Batacharia with Bank of America. Your line is open, please go ahead. - All right, thanks for taking my questions and Mark, congrats on the roll, and I look forward to working with you. Maybe I'll ask you my first question. As you look out over the next 12 months, do you think Super Micro has enough cash and cash flow to self-fund the investments that are needed to support the strong growth that you're seeing?

What would cause you to raise more capital? And do you have a preference for debt versus equity? And I will follow up. - Very good question. Oh, as you know, by the end of the last quarter, our cash is six billion. Yeah, we never have so much cash in the bank. So indeed, the cash flow at this moment, we don't worry, even if second half can tend to grow stronger if the macro economy is healthy. Our cash flow is in much strong position, then before ever.

- Right, yeah, as Charles pointed out, I mean, starting with $6.9 billion of cash puts us in a very good position. As we mentioned, our working capital efficiency has gone up, our ability to fund our working capital needs through our focus on high-quality customers and some customer prepayments. That puts us in a great position so that we can optimize our capital structure. We can think about trade-offs if we have very attractive opportunities that require incremental funding.

We have our $1.8 billion working capital facility. And we have the opportunity to kind of access other markets. As you point out, both the credit and equity markets. At this point, we don't have any plans to consider equity raises. And as far as the debt markets, I think we would look at what was available and how it would best position the company for continued success and provide us with the right leverage structure. - Due to time constraints, we'll be taking one final question.

This question comes from the line of George Nauter with Wolf Research. Your line is open, please go ahead. - Hi guys, it's Vernon Rogers on for George. I guess just a question on what's changed in your conversations with customers in the last 90 days in order to get this better visibility. Like is this a feature of today's market? Like customers are extending the forecast timelines that they're giving you or is this sort of more of a shift and how you're managing the business?

- Yeah, as we mentioned, we have a strong pecker older. And so we have a choice to select CSE customer and customer older quality. Customer quality is very important to us. So we have a chance to select it from some point of view. - Yeah, and I think as Charles pointed out, we are getting better visibility from a number of our customers, some very large, some moderately large, and we're getting visibility across geographies. - And so-- - Banana enterprise.

- Yes, and the growth of the enterprise business is another factor that will provide enhanced visibility and stability to our overall revenue stream. - We have reached the end of the Q&A session. This concludes today's call. Thank you for attending, you may now disconnect.

Where this company stands

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