Thank you for standing by. My name is Jayla, and I will be a conference operator today. At this time, I would like to welcome everyone to the Supermicro, Inc. Q2 Fall Year 2025 Business Update Call. With us today are Charles Liang, Founder, President, and Chief Executive Officer, David Wiegand, CFO, and Michael Stager, Senior Vice President of Corporate Development. All lines have been placed on the 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, it is star followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. Thank you.

Good afternoon. Thank you for attending Supermicro's second quarter fiscal 2025 business update conference call for the second quarter, which ended December 31, 2024. With me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, and David Wiegand, Chief Financial Officer. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts. Additionally, the company will not address any questions regarding the delay in the filing of the company's fiscal year 2024 10K and 10Qs due thereafter. During today's conference call, Supermicro will address business and market trends from the second quarter of fiscal 25, including our financial outlook and operations, our strategy, technology, and its advantages, our current and new product offerings, and competitive industry and economic trends. We will discuss estimated financial results by reference to any financial results are preliminary and subject to change based on finalized results contained in future filings of the FTC. By now, you should have received a copy of today's news release that was issued after the close of the market and is posted on our website, where this call is being simultaneously webcast. Any forward-looking statements that we make are based on facts and assumptions as of today and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted and reported results should not be considered as an indication of future performance. As a discussion of some of the risks and uncertainties relating to our business is contained in our filings of the FTC and we refer you to those public filings including our most recent annual report on Form 10-K. During this call, all financial metrics associated and growth rates are non-GAAP measures other than revenue and cash and investments. This call is being live broadcast on the Supermicro Investment Relations website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website and as a property of Supermicro. Our third quarter fiscal 2025 quiet period begins at the close of business Friday, March 14, 2025. And with that, I will turn it over to Charles.

Thank you, Michael, and thank you to everyone for joining us. We have some important updates today on our financial finance operational progress technology innovation and business opportunities as we are close to the midpoint or fiscal 2025 i will begin by reviewing some key financial highlights from the december quarter our preliminary fiscal q2 net revenue is projected to range between $5.6 and $5.7 billion, making a 54% year-on-year increase at the midpoint. Despite some negative impacts on cash flow and market misperception due to the 10K delay, we achieved a fairly good quarter. Driven by sustained AI demand from both existing and new customers, Our growth trajectory for physical e-authentify remains promising. Highlights by the beginning of our transition from HAPA to BlackWare GPU, we expect the growth in new generation platform to accelerate as supply ramp this quarter NPR. We have confidence that our calendar year 25 growth could be a repeat of calendar year 23, if not better, assuming that supply chain can keep pace with demand. Our preliminary physical Q2 non-GAAP earnings was in the range of $0.58 to $0.60 per share versus $0.56 last year, representing approximately 5% year-on-year growth. The GAAP gross margin was approximately 11.9%, and the GAAP operating margin was approximately 7.9%. Margin was temporarily under pressure due to the 10K delay disruption. The new product R&D investment and customer and product mix. In a separate press release issue today, we announced a private placement of $700 million in new 2.25% convertible senior notes due in 2028 to support our rapid business growth immediately. We have also privately amended portion of our existing convertible nodes due in 2029 with almost all investor participating in the amended nodes. This will support our growth including Supermicro 4.0 initiatives, data center building block solution, DCPPS, and some brand-new GP platform architectural design before diving into the details of our operation progress let me begin by sharing an update regarding our financial violence our financial team and our new auditor bdo have been fully engaged in completing the auditor process based on our progress to date We are confident that our fiscal year 24 Form 10-K and the first two quarters of fiscal year 25 Form 10-Q will be filed by February 25th this year. As previously stated, the special committee found no evidence to support our formal auditor's reasons for resignation. However, over the past two quarters, we have added senior leaders in corporate communication, operations, finance, legal, and compliance departments. We will continue to add more top-experienced leaders to build a stronger corporate foundation for our rapid growth and expanding global business, including the CFO, CCO, and other position as you know when a company quickly grow 4x business in three years like shibu michael adding more senior leaders is also a natural requirement especially we know we will continue to grow strongly in the future moving on to our technology progress we are excited to announce that our nvidia blackwell products are shipping now we have begun volume shipping of both air cooled 10u and liquid cooled 4u nvidia b200 hgx system meanwhile our nvidia gb200 mvl72 racks are fully ready for production as well utilizing our system building blocks we are going to send of more brand new platforms for customers seeking further optimize higher density and even greener AI solutions. While most key components are ramping at a full speed, it will take some time to fulfill our current AI solution backlog. Some customers also need more time to finish their DLC data center view out. At the same time, we see strong new demands coming from enterprise CSPs, serving entity, and hyperscale. We are expanding and enhancing our total liquid-cooled data center infrastructure solution featured in the latest DLC technology. is amplified by the XAI process, the world's largest deep-cooled AI supercomputer. Supermicro is the disruptive leader in driving industry-wide adoption of DLRC technology, which reduces customers' impacts and achieves green computing. We expect more than 30% of new data centers worldwide to adopt liquid cooling infrastructure within the next 12 months, driven by the rapid and continued growth of AI. Winning computing deserves to be everywhere in the world. Our DLC long-term investment and leadership provides a sustainable, competitive edge. and economics of scale, far ahead of competition. Supermicro's data center building block solution consolidated several racks, networks, storage, water tower, software management, on-site deployment, cabling, and service for an end-to-end solution. The true value of data center building block solution is to save power, reduce space, and decrease water consumption, resulting in up to 40% lower TCO for our customers, according to our detailed calculation. It accelerates new data center deployments and helps modernize existing infrastructure in weeks or months, rather than quarters and years significantly improve data center ttd and tto a time to delivery and time to online we are expanding our data center building block solution to include the more key subsystems quarter after quarter and will become a true one-stop shop a data center partner to to the whole industry. On the production from our new Malaysia campus, we will soon ship products to our regional partners. Our Taiwan and European production capacity are also growing significantly. In Silicon Valley, we are rapidly expanding our manufacturing style to increase our DLC rack scale production capacity. The U.S. campus boasts an impressive 20 megawatt of power, enabling us to produce over 1,500 DLC GPU racks per month in the U.S. To better support our key partners and align with current government initiatives, When needed, we are also ready for other domestic manufacturing expansion in various regions across the U.S. This strategic expansion will ensure we meet the increasing demand for our product and service while maintaining our commitment to a chief partner for quality security tco total cost of ownership ttd again time to delivery and tto time to online to summarize we have been a product and technology leader in the it industry for over three decades As we continue to strengthen our internal operation and expand our U.S. and global manufacturing footprint, we aim to turn these progresses into value for shareholders, customers, and Our force to market advantage of delivering the most innovative AI infrastructure technology with BlackWare, coupled with exceptional product-quality service software, networking, and security, with data center building product solutions, we continue to reinforce our partnership as the premier U.S.-based data center infrastructure solution provider. With our expanding technology leadership and today's AI trends, We believe it will result in a similar growth trend for us, like 2023. With that, I am confident we will finish this fiscal year strongly with revenue in the range of $23.5 billion to $25 billion. And I believe we have potential to reach $40 billion for fiscal year 26. Before passing the call to David for our financial overview, I want to thank all of our partner, customer, investor, and ShibuMikra team members and express my deep appreciation for their continued support. With that, I will now turn the call to David.

Thank you, Charles. Please note these numbers are preliminary and unordered. It's subject to change upon completion of review by management, our audit committee, and additionally, our independent audit firm has not completed its review procedures with respect to this preliminary financial information. So to start, again, we expect Q2 fiscal year 25 revenues in the range of $5.6 to $5.7 billion, up 54% year over year. Again, growth was driven by demand for air-cooled and VLC RackScale AI GPU platforms. AI-related platforms, again, contributed over 70% of revenue for Q2 across enterprise and cloud service provider markets. The Q2 non-gap gross margin is approximately 11.9% versus 13.1% last quarter due to lower margins from product and customer mix. And you'll recall that on the Q1 earnings business update call, we guided down 100 basis points for this quarter. The non-GAAP operating margin is approximately 7.9%, which excludes $82 million in stock-based compensation expenses versus 9.7% in Q1 due to those lower gross margins. Other income and expense is approximately $8 million, consisting of $15 million in interest and other income, offset by $7 million in interest expense. The tax rate is approximately 15% for GAAP and 17% for non-GAAP. GAAP net income will range from $315 to $325 million, and non-GAAP net income, $375 to $392 million. Non-GAAP net income excludes $63 million in stock-based compensation expenses, net of the related tax effects of $19 million. Gap diluted EPS is approximately $0.50 to $0.52 versus prior guidance of $0.48 to $0.58. Non-gap diluted EPS is approximately $0.58 to $0.60 versus guidance of $0.56 to $0.65. We expect a gap diluted share count of approximately $636 million and a non-gap diluted share count of $647 million. The closing inventory was approximately $3.6 billion versus $4.9 billion last quarter. CapEx was $28 million. Cash used in operations was approximately $240 million versus cash generated from operations of approximately $409 million in Q1. But Supermicro began the second quarter with approximately $2.1 billion in cash and recorded approximately $320 million in gap net income for the second quarter. Cash was provided from lower inventory and other sources, totaling $1.5 billion. And then the company used cash to pay down accounts payable by $1.2 billion. We realized higher other receivables from purchase rebates and prepaid inventory of $484 million. We had increased accounts receivable of $335 million. We also reduced our bank loans by $346 million net, and we incurred capital expenditures of $28 million and had other uses of cash totaling $87 million. This resulted in a reduction in cash during the quarter of $660 million, thereby ending the company's second quarter fiscal year 25 quarter with $1.4 billion in cash. at the end of December. Now, I want to point out we've continued to prudently manage our working capital, and for the month ended January 31st, 2025, we ended with approximately $2 billion in cash. Turning to the balance sheet and working capital metrics, compared to last quarter, the Q2 cash conversion cycle was up to 104 days versus 97 days in Q1. Days of inventory was 78 days compared to the prior quarter of 83 days. Days sales outstanding for Q2 was 47 days versus 42 days last quarter, while days payables outstanding was 21 days compared to 28 days last quarter. In a separate press release issued today, we announced a private placement of 700 million of new 2.25% convertible senior notes due 2028, and we privately amended our existing 1.7 billion convertible senior notes due 2029. The company is reconfirming that no previously issued financial statements require a restatement. The company, however, made certain adjustments to the preliminary unaudited results for the fourth quarter of fiscal 2024 that it had announced on August 6, 2024. The adjustments recorded in the results for the fourth quarter of fiscal year 2024 include an increase in net sales of approximately $46 million and an increase in the cost of sales of approximately $96 million, which included a charge due to an increase in inventory reserves of approximately $45 million. There was also an increase in operating expenses of approximately $5 million. Until the company's fiscal year 2024 financial statements are filed, the company is required to reassess its accounting estimates for financial reporting. The charge for inventory reserves results from an unanticipated decline in the market value of certain components that were held in the company's inventory or on non-cancelable purchase orders at the end of fiscal year 2024. 24. Collectively, these changes resulted in a downward adjustment to the previously announced preliminary unaudited fiscal year 2024 and fourth quarter of fiscal year 2024 gap and non-gap diluted net income per common share of approximately nine cents. That's based on a post-split diluted shares outstanding basis. The foregoing adjustments are to previously announced preliminary unaudited financial results, and as such, they do not constitute a restatement. For the third quarter of our fiscal 2025, we are expecting net sales in the range of $5 billion to $6 billion. We expect the GAAP and non-GAAP gross margin to be approximately 12%. We expect GAAP and non-GAAP operating expenses to be up approximately $17 million sequentially and GAAP and non-GAAP other income and expenses to be a net expense of approximately $12 million. We expect GAAP net income per diluted share of $0.36 to $0.53 and non-GAAP net income per diluted share of $0.46 to $0.62. The company's projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 10.7 and 12.7, respectively, a diluted share count of approximately 642 million shares for GAAP and a diluted share count of approximately 653 million shares for non-GAAP. The outlook for Q3 of fiscal year 2025 GAAP net income per diluted share includes approximately 65 million in expected stock-based compensation expense and other expenses, net of related tax effects of approximately $17 million, which are excluded from non-GAAP net income per diluted share. So again, I want to point out revenues for the trailing four quarters are between $20 and $21 billion. And for the fiscal year 2025, we are updating our revenue guidance from a range of $26 billion to $30 billion to a new range of $23.5 billion to $25 billion. So we're very happy to announce that the company has raised money through the issuance of new bonds, and we will continue to improve our liquidity as our growth requires it. The final, I want to end by saying that the final financial results reported for this period may differ from the results reported here based on the review by BDO, our new independent registered public accounting firm. We expect to complete our fiscal year 2024 audit by the February 25th filing extension date that we have been granted by NASDAQ. So, Michael, turn it back to you.

So, Laila, we'll now take questions.

Again, if you would like to ask a question, it is star followed by one. Our first question comes from Michael N.G. with the company Goldman Sachs. Michael, your line is now open.

Hi, good afternoon. Two questions for me, if I could. First, I was wondering if you could talk a little bit about the $40 billion fiscal 2026 revenue outlook. What informs your confidence there? if you could shed any light on backlog or pipeline or product roadmap that is informing that, that would be great.

Yeah, I mean, our product line continues to grow. We have industry standard product line plus lots of super set, including some confidential product under development. And we have customer engaged research for those projects. So this year, even 10K today, we grew about 60%. Last year, we grew 110%. So the coming year, fiscal 26, at this moment, we believe at least, we will grow 65% at least. So that's, I believe, a very conservative estimation. And the past in production capacity, I mean, USA now, our utilization rate is only about 55 percent. Taiwan utilization rate is only about 60 percent. Malaysia utilization rate is still about 1 percent only. So there are lots of room to grow for us.

Great. Thank you, Charles. And just as my second question, I was wondering if you could talk about the mix of Blackwell and Hopper servers in the quarter. You know, not looking for anything specific, but was it different than what you may have expected? Was Hopper stronger? Was Blackwell affected by any supply chain constraints?

Yeah, we have both already, right? Hopper was sure had been a very mature product, H20, for example. And then Blackware, we have a GB200 fully ready in production. And then for B200 HGX, we have a 10U air cooler fully ready for production. And then 4U liquid cooler fully ready for production. And we already accumulated some good volume backlog, back order, and continue to see lots of new order coming. So, I believe we do not share the detail about the percentage. But basically, for sure, more and more customers like to have B200 and GB200, but we have all of them ready.

Thank you for the thoughts, Charles. Appreciate it.

Thank you.

Our next question comes from Ananda Baral with the company Loop Capital. Ananda, your line is now open.

Hey, good afternoon, you guys. Thanks for taking the questions. And congrats on, you know, on what's a pretty solid print in delivering to the news here. I could sue if I could. The first is just on gross margins. You know, Dave, what's a good way to think about June Q gross margins in the context of your guide? And then just sort of the second one there, this is the second part of my first question. I have a follow-up question as well. Now, what's the good way to think about gross margins through the blackwell cycle? This is obviously a key question for people, and they want to remove the concern off the table that there could be, you know, material margin pressure through the blackwell cycle. So those two, and then I have a follow-up.

Thank you for your question. For sure, when products become mature, like H-100, H-200, then we have to face price competition strongly. But for black whale, doesn't matter GB213 or B213, for sure, whenever there are new product, our margin will become much better. And especially talking about liquid cooling, we believe DLC or overall liquid cooling, market share, will grow all the way to 30 percent or even more in the next 12 months. And in terms of liquid cooling, in the last 12 months, I believe we have offered a majority of global liquid cooling. So when faced with blackware opportunities, most of the customers have to go for liquid cooling. I believe we have a much better position.

Can I just throw a point on there? Let me just add that while they are focused, most of us are focused on the gross margins. rightfully so, but don't miss the critical point that we're driving operating margins above our targets, and that translates into shareholder value.

So, Ananda, this is David. One thing I would add is if you look back to what happened with H100, as Charles mentioned, Supermicro was the company that had a stable platform, which became a market leader. And so that helped our margins as they crept up to, you know, 18.8. Now, of course, you know, we're targeting, we said we target 14 to 17. But, you know, the question is, you know, to your point on Blackwell, you know, what will be, what will the competition be able to deliver? And I think that's going to be a big indicator of margins. We feel like we're in pretty good position. Because we've already been, yeah.

Yeah, appreciate that. Appreciate that, guys. And then the follow-up is just on the rev guide. Charles, the $40 billion, so a couple things. You mentioned calendar year 25 could be similar to calendar year 24, which is about 40% growth. So that would suggest maybe $8 billion on average in the September-December quarter of revenue. And then the $40 billion, the at least $40 billion for fiscal 26 would then suggest maybe at least $12 billion on average the March and June quarters of 26th fiscal year. So is that sort of what you're talking about? And then what gives the confidence, I guess, what's the thought process underpinning that $40 billion and those kind of rev quarters? and is it GPUs as well as custom ASICs as the TAM opens up, you know? So just kind of a customer question there as well. That's it for me.

Yeah. Yeah, thank you. Again, whenever there are new technology, we have a good chance to grow, right? Kind of like this time, Blackwell, right, and kind of DLCC cooling. And again, we have a much higher capacity ready for liquid cooling compared with the market. And last year, we grew 110%. And this year, basically, we grew about 60-something percent, right? So next year, fiscal year 26, I believe 65% is a very conservative estimation. And personally, I hope we can grow more than that. But that's to be conservative.

Thank you. Thanks, guys. Really appreciate it.

Our next question comes from Sameek Chatterjee with the company J.P. Morgan. Sameek, your line is not open.

Yep. Thanks for taking my question and have a couple of questions as well. Maybe just to start off, Charles, I think the last time you mentioned, which was in 2024, that we could expect sequential revenue increases in the medium term on a quarterly basis. When I sort of look back at it in hindsight, it looks like what derailed that sequential growth to some extent was the product transition from NVIDIA in going from one product generation to another, which also drove some change in customer behavior. As you're thinking about the revenue target here for $40 billion for fiscal 26, I mean, is there an underlying assumption that you won't see a similar customer behavior change towards the next generation product as NVIDIA goes through a transition again in that time frame? Or is there something that I'm missing in that sort of overall product transition that we should expect from your GPU supplier? And then a quick follow-up.

Yeah, I mean, for calendar 25, for example, I believe we should be pretty able to repeat 2023 history. In 2023, the H-192 launched, and we are ahead of competition. So we grew very well. In calendar year 25, we are facing the same opportunity now, except before our old air cooler, and now it's liquid cooler. And in terms of liquid cooling, especially DLSE, we have a major market share, and we have a huge capacity, 15 entry break per month capacity ready. And we already have many customers already approved their liquid cooling data center and getting ready to deploy in high volume. So once black were in volume production, I believe we will have a strong growth. And now we are just preparing, citizenry preparing all the logistics, including the system enclosure, the thermal solution for sure, the GPU supply from our vendor, NVIDIA. So we are well prepared, and once logistics are ready, we are ready to ramp up our groups.

Maybe Charles will follow up on that.

Go ahead, Charles. Plus, I mean, we are spending more effort in Asia and Europe now. In 2023-24, most of our market are in the USA. but now our team in Asia and Europe are becoming much ready, much stronger to grow much share in Europe and Asia as well.

Correct, correct. And Charles, I'll just follow up with a question that I'm getting from investors today after the print, which is when we look at that sort of 40 billion revenue target, how confident are you about achieving that revenue target with the current customer engagements that you have relative to what you need in terms of additional customers and new customer engagements to get to that revenue that you're targeting? If you can share your thoughts on that, please. Thank you.

Yeah, in the last few years, our growth has been very strong, except a 10K interrupt, right? So in that four months, five months, we suffered a 10K impact, so our growth has been slowed down. But we will fix 10K filing very soon, and cash flow won't be a problem anymore. So product is strong. Capacity here, customer is ready. So I believe $40 billion forecast is a relatively conservative estimation.

Thank you. Thanks for taking the question. Thank you for your question.

Our next question comes from Ruplu Batachara with the company Bank of America. Ruplu, your line is now open.

Thanks for taking my questions. I have two. The first one is on gross margin. Overall, do you think industry margins are now under secular pressure, given more competition from other AI server manufacturers? And is liquid cooling really a competitive advantage which you can charge more for, Or is that also becoming commoditized since it looks like everyone seems to be offering their version of liquid cooling? So, David, how are you thinking about the long-term gross margin range for your business? And I have a follow-up on revenues.

So what I would say about gross margins are that, number one, what we count on, Ruplu, is being the first to market with the very best solutions. And so, you know, right now we have a shipped, you know, GB200, for instance, and we're very confident in its quality as a product. And that's really what helps to drive, you know, good margins. So it's not just liquid cooling. It's really stable systems that have high quality, high reliability, and also really the best performance. So I think that our abilities in liquid cooling were already demonstrated in the prior quarters, and it's really our data center building block solutions which give us a plan for the future. And so we have a lot of things planned for the future, but data center building block solutions are one of those, where we offer a lot more solutions for the complete data center at all levels. So, again, we haven't changed our target margin, and, yes, there is competition. There's always going to be competition, but I think that if you look at how we've performed historically and our ability to engineer in all the latest technologies, I think that's our moat. That's our advantage. Yeah, let me add that a little bit. Okay, thank you.

I mean, the TLC, yes. Yeah, DLC, everyone talking about a DLC solution, but how many competitors really have a DLC deployment in high volume? I guess it's very minimal. Last year, I believe we shipped at least 60% worldwide DLC solution. So that means those are competitors, indeed, they are ready, but they did not have experience yet. And talking about data center building block solution, not many providers are able to provide on-site deployment and on-site cabling, on-site servicing. And now with DLC, with 150 kW per rack, or even more power per rack, I believe the on-site deployment, cabling, service become a very important value to customer. And we are a company that have exactly all our experience, all our successful story.

Okay. For my follow-up, if I can ask, you know, as new, efficient AI models like DeepSea come about, how are you thinking about the impact on your business? And, you know, as we move from training to inference, what is Supermicro doing to further penetrate the enterprise vertical? I know you have enterprise customers, but for those enterprise customers who don't have a large engineering presence, what is your strategy for attacking that customer base as well as for sovereign customers? Thank you for taking my question.

Okay. So for deep seeking, I mean, for sure, software can always be more efficient quarter out of quarter. So we know that. But the industry's expense pretty depends on financial plan. So I believe the market size won't shrink because of deep seeking. And in terms of enterprise, we have been in the enterprise market for more than 10 years. And our team in enterprise has been much stronger than before ever, especially with our service team, management software, and end-to-end data center solution. I believe it's the right time for us to grow quickly in enterprise segment.

Okay, thanks for all the details. Appreciate it.

Thank you.

Our next question comes from Nihal Chokshi with the company, Northwind Capital Markets. Nihal, your line is now open.

All right, thank you. Quick question here. Can you tell us whether or not backlog is up Q or Q for the December quarter?

So we don't generally give out backlog figures, Nihal. But what we can say, though, is that, you know, backlog tends to follow the chip cycle. And so, you know, when you have new chip solutions coming out, you'll see backlog start to build as solutions become dependable and reliable. And then they'll tail off, you know, as the products mature. And so, you know, with the expectation of some of the new chips coming out, you know, we believe that you'll see, you know, growing backlog industry-wide. Thank you.

And then I apologize in advance. This question is going to sound a bit Turkish. But, you know, Charles, you characterize a $40 billion target at 60% year-over-year growth. And given that fiscal year 25 is going to be around 60% year-over-year growth and, you know, likely impacted by the 10K delay, therefore 60% year-over-year growth for fiscal year 25 is potentially conservative. But, I mean, is historical year-over-year growth really a good indicator or future demand? Have you looked at the actual pipeline of demand and said, yep, we believe that this is how big is the pipeline, and this is a reasonable conversion rate, and therefore $40 billion is indeed very reasonable?

Yeah, very good question. From both, I mean, we meditate on business from all different dimensions, right? I mean, from our historical growth, last few years, we have been growing more than 60% year over year, basically. Except this year, right, according to the year, because of 10K today, and we have some cash flow constraint. So we grew, we may grow only about 60% or 60% some shit. But other than that, I believe looking forward in the next few years, our growth every year should be more than 60%. And second, from a customer demand, from a customer backlog, from a customer commitment, sales commitment, it looks like $40 billion is a relatively very conservative target.

Great. Thank you. And if I might squeeze one more in. I'm sorry, but I'm not quite getting what you mean by data-centered building block architecture. Can you give me a concrete example as far as what does that mean? Is it like basically the cooling tower design or something else? Can you put a little more concreteness behind that?

Okay, still a little bit confidential, but I'm happy to share. I mean, it's like our ROAC scale building block solution. Customers want to build in their ROACs, we have everything for them. Samsung, customers want to build their data center, we will have everything for them. And today, we offer more and more key components. For example, liquid cooling, the Ola kind of liquid cooling pump, right, and water towel, right, dry towel, water towel. And then Ola kind of a little bit too new to share. I mean, anyway, Ola people build a data center need those key components. We try to provide all of that, including software, including management tool and experience. So I hope customers can one-stop shop with SuperMichael to build their data center. Make their data center time to market much quicker and also cheaper on the whole coast, right? And quicker to build their data center and less power consumption and better quality.

Thank you.

Our next question comes from John Tenwon Jin with the company CGS Securities, Inc. John, your line is now open.

Thank you for taking my questions.

Charles, I was wondering if you could break down the factors, or maybe David, you know, driving the reduction in the 25 revenue guidance. How much is maybe pricing related? How much do you think is related to, you know, delays or availability of Blackwell and the impact in hopper demand? And then maybe how much was related to your 10K and maybe customers not feeling so great about, you know, doing business with you until that's filed?

Yeah, I would say, John, that probably the biggest factor was just the delay in new technology. Because we were, when you think about it, we were all set to go. So we were all set to ship, you know, with liquid cooling. We were ready. And, you know, but the problem was is that the, you know, not everything else was. So that was certainly a huge impact. I think obviously 10K delay was a distraction, but it's more about technology for us because we count on being early to market. And so that's what creates the big jumps that we have, the kind that took place last year from Q3 to Q4 when we went up $1.5 billion in one quarter. But, you know, remember, we finished the four quarters that ended June 30th at $15 billion, and now here we are two quarters later, and now we're at a trailing four quarters of over $20 billion. So, you know, we have the dynamic to accelerate really well when the technology is there that customers want. And I think if you look at all of the spending predictions and intentions that are out there, you can see the money being put in place to spend money on data centers and on data center solutions. And that's why we're here.

Got it. And then can you talk about your capital needs and cash flow expectations going forward as you, you know, start getting into court where you're maybe generating $8 billion in revenue, $12 billion in revenue, you know, as implied by that $40 billion target?

Yeah, so we're working on a number of different fronts to, you know, to raise additional capital, you know, which we just did with, you know, some of our actually the investors that put money into us previously with our bonds. So they came back and provided additional capital for us. So we will – we've always said we want to use our balance sheet as we can to generate additional funding for our growth. But, you know, we'll – just like we're preparing on the engineering side, we'll also prepare on the capital side.

Yeah, in terms of leverage, our inventory and AR, I guess the loan should be available very soon for us.

Yeah, we have a very unlevered balance sheet, you know, as you know right now, because we paid down a lot, you know, some of the bank debt, and so we've paid down a lot of accounts payable. And so we have a very healthy balance sheet.

Got it. Thank you.

Our next question comes from Aaron C. Rikers with the company Wells Fargo. Aaron, your line is now open.

Yeah, thanks, guys, for taking the questions. Most of them have been answered or asked and answered, but I've got a couple here real quick. So, first of all, Charles, I just want to make sure I'm clear.

You know, Blackwell and the product cycle, are you shipping the GD200, the NVL-72 today? or and or if not you know is that is that a significant factor as far as volume shipments in your current quarter guide and I've got a few others you know GP at all 72 opposition is similar to other competitors right so we have a solution for you ready now once we have a support from Nvidia and we can ship And other than that, our B213, indeed, I believe, is some of our advantage because we have all different kind of optimized platform, especially for 4U DLLC. We have lots of demand there, and we are ready to ship in volume about now. And DLLC, that's perfect. Yeah.

Sorry, go ahead.

Yeah, I said DLC, as you know, last year, we shipped more than 3,000 racks to the market. I believe that's about 70% of the whole market, whole DLC market last year. So we have a much better experience, much better solution. So when customers are looking for GP213 or B213, I believe we are in a much better position than the industry's average, for sure. Yep, that's perfect.

And then my second question is really on gross margin. You know, I apologize to ask again on this topic, but can you walk us through the variables that drove the sequential change in gross margin this last quarter? And I guess the other thing is that, you know, Charles, you mentioned some of the utilization rates in U.S. and Taiwan. You know, hypothetically, let's say that you're at, I don't know, pick a number, 70% or 75% utilization rate. How much of an impact would utilization rates have on gross margin? How do we isolate that impact?

We did not provide that, but basically, for sure, the impact may be 20, 30 points.

Yeah, we, in the past, we've said if we can manufacture in Asia, we predicted that we would be able to save one to two points, you know, on the margin, Aaron. But we, you know, back to, let's see, and then you had another question on gross margins to walk you from Q, back through Q2. And because, again, we forecast back in November that we would be down 100. basis points, and that was because of the customer mix and products that we saw shipping out. Remember, we're working on more end-of-life products, which have become more competitive as customers are waiting for the new platforms by all the different technology companies to come out from Intel, AMD, and NVIDIA. So there is, of course, more people that are offering solutions. But as Charles mentioned, going into the B200s and the GB series, this is going to be perhaps a different game. And so that's my commentary on how we got to the change in margin. And we had some extra expenses as well because we're spending more on R&D right now and specifically in buying, you know, some of the advanced, you know, chips as we refine our engineering and production to get ready for, you know, what we consider will be very large, you know, shipments coming up.

Thank you, guys. Yeah, on-site deployment, cabling, and service. That will be another differentiation with other competitors.

Our next question comes from Quinn Bolton with the company Needham & Company. Quinn, your line is now open.

Thanks for taking my question. Just wanted to follow up on the GB200 NBL 72 question. It sounds like you guys are ready to go, but the biggest gating factor is just support from NVIDIA. Do you guys have a forecast from NVIDIA, you know, when you think you're going to start to see, you know, supply the GPUs so that you can ship the NBL 72 or is visibility still pretty low on availability of the GPUs?

We already proved pretty much everything. And now just waiting for – and we are in some allocation, some volume, but the volume demand is way much bigger. So we are waiting for more allocation. So that hopefully very soon we can ship in a much higher volume.

So it's just waiting for the allocation, it sounds like, is the gating factor. Got it. And then maybe just a follow-up, longer-term question, Charles, on this deep-seek impact on the industry, it certainly sounds like we'll get more deployment of AI models, which probably says we get more inferencing. To the extent that you see more inferencing infrastructure put in place, it's probably more fragmented. I assume that that's good for super micro because it's, you know, less concentrated, probably more variability of systems. But can you spend a second on whether you think, you know, a shift towards inferencing is positive for the business? Is it neutral? Is it negative?

Yeah, it's very positive. When inferencing becomes more popular, becomes a worldwide trend, right? I mean, before, I mean, they may have 300 via, basically. But with investing getting popular, AI getting popular, I believe very soon there will be thousands of companies need to buy AI equipment or service. So we are very happy to see the market size is growing and many more customers are asking for products, asking for total solutions. And with our application optimized nature, a building block solution, we are able to service a variety of customers in different verticals. So that's another advantage we will have. Thank you, Charles. Thank you.

Our next question comes from George Wang with the company Barclays. George, your line is now open.

Oh, hey, guys, and thanks for taking my question. Hey, Charles, can you talk about kind of your current pipelines just in terms of the mix of sovereign AI? Just especially versus three months ago, can you kind of talk about whether you're seeing an incremental kind of, you know, pipeline build from the sovereign AI of the world?

Yes, it's also increasing. I mean, before, most of the demand are USA and some other large country only. But now, yes, we see many more countries going to build their own AI infrastructure, especially for solving AI and inventing as well. So the demand is kind of worldwide now, and it's a very exciting moment to see the AI boom continue to be popular worldwide.

Just a quick follow-up, if I can. Yeah, as we, you know, potentially head into the GB300 era later this year or 2026, you know, the supply chain chatter of most of the open standards as NVIDIA kind of will potentially unbundle the supply chain. So that could potentially add more customization. So maybe directionally, can you talk about the implication to Supermicro, especially for the margin? Do you think that you can add a bit more customization, hence more margin, as we're heading to GP300, or is it non-material?

Yeah, technology is always unlimited. People always come up with some idea and some demand for different verticals, for different applications. So we never feel our engineers have nothing to do. So always do not have enough engineering manpower. So even today, we still continue higher engineering very aggressively worldwide. So there are lots of room to optimize for different customers, different product line, different verticals, and especially for invention, right? So I still have lots of room to differentiate. And especially when we get into a data center building problem solution, Now we are growing our Mach 10 to data center infrastructure, so to provide the whole solution for people who need to build a data center. So I see our Mach 10 also faster growing.

Thank you. J.L., we're out of time. Thank you for attending the Supermicro Conference call, and we'll catch up with you soon. Thank you.

That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.