Super Micro Computer, Inc. Q4 FY2026 Earnings Call

Thank you for standing by. My name is Matt, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Supermicro Computer Inc. Q2 Fiscal Year 26 Financial Results 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 mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. All lines will be muted during the presentation portion of the call if an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. Over to you, Michael.

Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the second quarter and full year fiscal 2026, which ended December 31, 2025, with me today, as you know, as Charles Leang, founder, chairman, chief executive officer, and David Wiegand, chief financial officer. 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. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the IR section of the company's website under Events and Presentations tab. We've also published management scripted commentary on our website. Please note that some of the information you'll hear during the discussion table consists of forward-looking statements, including without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the third quarter of fiscal 2026 and full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions that involve material risks and uncertainties that could cause actual results or events materially different from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K filing, fiscal 2025, and other SEC filings. All these documents are available on the IR page of Super Michael's website. We see no obligation to update any forward-looking statements. Most of today's presentation refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors the means of evaluating and understanding the company's management, as management evaluates the company's operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for, or superior to financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts. Our third quarter fiscal 2026 quiet period begins at the close of Business Friday, March 13, 2026. And for now, I will turn the call over to Charles.

Thank you, Michael, and thank you all for joining today's call. Supermacro delivers a strong FISC Q2 as AI infrastructure demand continues to accelerate across every major customer segment. For a quarter, we achieved a record $12.68 billion in revenue, including $1.5 billion before the former top-of-account last quarter, representing 123% year-over-year growth. This strong performance reflects the sustained momentum of our AI solutions and the large-scale systems as customers build our next-generation AI factories. Supermicro has been developing some of the largest and most complex AI cluster ever built, highlighting our unmatched capability in large-scale manufacturing on-site deployment and integration. Most notably, our data center building block solution, or DCBPS, has started to gain some key customers' preferences as they look for quicker time to deployment, TTD, and quicker time to online, TTO. These pre-designed, pre-validated infrastructure building blocks not only speed up customers' data center builds but they also save cost with better workload optimization and with minimal power and water consumption. BCPPS will significantly have us gain much share in large medium and small AI infrastructure deployments With GD300, B200, B300, and MI350 platforms, we are also preparing for the upcoming NVIDIA, Vera Rubin, and AMD Helios solutions for the second half this year. While we continuously growing AI factory, build our customer and product mix are shifting more to a large model builder who has pricing leverage, pressuring gross margin. In Q2, especially the expedited transportation costs, ongoing components shortage, and their volatile pricing among these tariffs impact our short-term growth margin. As such, I would like to take a moment to highlight our key strategies to address this and efficiently strengthen our long-term profitability. First and foremost, Supermicro undergoes its fourth phase of product evolution with DCPPS as its key focus. As this data center depreciates scale, DCPPS is and will become an increasingly important part of our value. In the first half of fiscal year 26, DCPBS solutions accounted for 4% of our profit. We expect this part of our profit to grow and meaningfully contribute to the second half of fiscal 26. And we see that growth accelerated to at least double this contribution by end of calendar 2026. With compressed GPU-CPU lifecycle, DCPPS becomes critical helpful to the value of our server and storage products by enhancing the data center infrastructure time to delivery and time to online, reducing power and water consumption, and cost-efficiently simplifying data center management and maintenance. In just about one year, our DCPBS product lines grew from more than, grew to more than 10 key subsystems, including CDU, L2A heater exchanger, chill doors, power cells, battery backup, water tower, dry towers, high-speed switching, data center management software and service. We are expanding this product line to include more new categories such as transformer, next generation power generators, device for energy backup, and grid power replacement, also strengthening customer value, accelerating deployment, and supporting long-term profit margin, improving for Supermicro. Other than the developing PCPPS for better value and portability, we are also sharpening our focus on traditional enterprise, cloud, and edge IoT customers to further diversify revenue with higher margin. In addition, we have introduced our x14 and h14 go series solutions featuring cleave configured systems that ship directly from our factory enabling rapid deployment optimized for specific ai cloud storage and teleco edge workloads these servers are ready to power and immediately and reinforce supermicro's core value time to market advantage for enterprise customer channel partner and smb end users we are also driving meaningful cost improvement through enhanced design for manufacturing , and quality-driven engineering. We have introduced more modularized subsystems and expanded automation across our facilities. These efforts increase year rate, reduce the work, and enable us to bring new platforms to volume production even faster and with higher quality. As product cycle shorten and technical complexity increase, these design for manufacturing advancement are essential for scale, efficiency, and long-term margin improvement. While executing these DEFM initiatives, we are also continuing to expand our global manufacturing footprint aggressively and strategically. Our Silicon Valley facilities remain the cornerstone of our U.S. operation, delivering faster time to market, strong security, and higher quality integration. Internationally, new production sites in Taiwan, Malaysia, and Netherlands, and soon the Middle East, are rampant to increase capacity, support regional solving, air requirements, and most importantly, optimize our overall coastal structure. In summary, as the only company with more than 32 years of robust server and storage focus, Supermicro is quickly developing into a leading AI platform and data center infrastructure total solution provider. Strong Q2 performance, rapid expansion of DCPPS, deeper and more customer engagement, and the global capacity investment position as well for long-term growth, while near-term margin pressure from customer mix, tariffs, international facility expansion, and key components shortage like memory and storage shortage. Our focus on enterprise business design for manufacturer improvement and the faster-growing DCBPS portfolio all help us gain new customers, support a higher growth and a net margin going forward. Lastly, based on our broad customer back-of-order forecast and commitment, we believe demands for AI and IT infrastructure remain unprecedentedly strong. Our DCPPS solution is exactly what customers need to build out their AI and cloud much faster, greener, and lower total cost. With that in mind, I'm confident to guide at least $12.3 billion for Q3 and up our full-year revenue guidance back to at least $40 billion. I look forward to sharing our progress with you next quarter. Thank you. Now, I will turn it over to David.

Thank you, Charles. We achieved record Q2 fiscal year 26 revenue of $12.7 billion, up 123% year over year, and up 153% quarter over quarter, compared to our guidance of $10 billion to $11 billion. Q2 revenue included approximately $1.5 billion in delayed Q1 shipments due to customer readiness. Growth was driven this quarter by the rapid ramp and deployment of our RackScale AI solutions. Despite supply chain challenges in the industry, our global manufacturing team executed well in delivering record revenue. Order strength remains strong from global large data center and enterprise customers. AI GPU platforms, which represent over 90% of Q2 revenue, continue to be the key growth driver. During Q2, the enterprise channel revenue segment totaled $2 billion, representing about 16% of revenue versus 31% in the prior quarter. That's up 42% year-over-year and up 29% quarter-over-quarter. The OEM appliance and large data center segment revenue was $10.7 billion, representing approximately 84% of Q2 revenue versus 68% in the last quarter. This was up 151% year-over-year and up 210% quarter-over-quarter. For Q2 FY26, one large data center customer represented approximately 63% of total revenue. By geography, the U.S. represented 86% of Q2 revenue, Asia 9%, Europe 3%, and the rest of the world 2%. On a year-over-year basis, U.S. revenue increased 184%, Asia grew 53%, Europe decreased 63%, and the rest of the world increased 77%. On a quarter-over-quarter basis, U.S. revenue increased 496%. Asia decreased 49%. Europe decreased 51%, and the rest of the world increased 53%. The Q2 non-GAAP gross margin was 6.4% versus 9.5% in Q1. Gross margins were impacted by customer and product mix, as well as higher freight production and expedite costs as we began to ship new platforms on a large scale. We had significant operating leverage during the quarter with total non-GAAP operating expenses representing 1.9% of revenue versus 4.1% last quarter. Q2 GAAP operating expenses were $324 million, up 14% quarter-over-quarter, and up 8% year-over-year. On a non-GAAP basis, operating expenses were $241 million, which was up 18% quarter-over-quarter, and up 6% year-over-year. Operating expenses were up quarter-over-quarter, largely due to higher sales expenses. Non-GAAP operating margin for Q2 was 4.5% compared to 5.4% in Q1. Other income and expense for Q2 totaled a net income of $26 million, reflecting $51 million in interest income on higher cash balances, partially offset by $25 million in interest expense, primarily related to our convertible notes. The tax provision for Q2 was $99 million on a GAAP basis and $122 million on a non-GAAP basis, resulting in a GAAP tax rate of 19.8% and a non-GAAP tax rate of 20.6%. Q2 GAAP EPS was $0.60 compared to guidance of $0.37 to $0.45, and non-GAAP diluted EPS was $0.69 versus guidance of $0.46 to $0.54 due to higher revenue and operating leverage. The GAAP fully diluted share count increased sequentially from $663 million in Q1 to $673 million in Q2, and the non-GAAP share count increased from $677 million to $688 million over the same period. Cash flow used in operations for Q2 was $24 million compared to $918 million used in the prior quarter. On a quarter-over-quarter basis, Q2 operating cash flow reflected higher net income, offset by higher accounts receivable and inventory levels, and aided by higher accounts payables. Q2 closing inventory was $10.6 billion, up from $5.7 billion in Q1 as we prepared for continuing strength in Q3 shipments. CapEx for Q2 totaled $21 million, resulting in negative free cash flow of $45 million for the quarter. During the December quarter, we expanded our access to working capital to fund growth, executing a $2 billion cash flow-based secured revolving credit facility in the U.S. In January, we also closed an approximately $1.8 billion secured Taiwan revolving debt facility. At quarter end, our cash position totaled $4.1 billion while bank and convertible note debt was $4.9 billion, resulting in a net debt position of $787 million compared to a net debt position of 579 million in the prior quarter. Turning to the balance sheet and working capital metrics, the cash conversion cycle significantly improved from 123 days in Q1 to 54 days in Q2. Days of inventory decreased by 42 days to 63 days versus 105 days in the prior quarter. Days sales outstanding increased by 6 days to 49 days versus 43 days in Q1, while days payables outstanding increased by 32 days to 58 days versus 26 days in Q1. Turning to the outlook for Q3, FY26, we expect net sales to be at least $12.3 billion. GAP diluted net income per share of at least $0.52 and non-GAAP diluted net income per share of at least $0.60. We expect gross margins to be up 30 basis points relative to Q2 FY26 levels. GAAP operating expenses are expected to be around $354 million, which include approximately $74 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q3 of fiscal year 2026 fully diluted GAAP BPS includes approximately $62 million in expected stock-based compensation expenses, net of the tax effects of $19 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense to result in a net expense of approximately $22 million. The company's projections for Q3 FY26 GAAP and non-GAAP diluted net income per common share assume a tax rate of 19.6%, a non-GAAP tax rate of 20.2%, and a fully diluted share count of $684 million for GAAP and 699 million shares for non-GAAP. Capital expenditures for Q3 are expected to be in the range of $70 to $90 million. For full fiscal year 2026, we expect at least $40 billion in net sales. Michael, we're now ready for Q&A.

Great. Matthew, can you roll the Q?

If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions registered. First question is from the line of Ananda Barua with Loop Capital. Your line is now open.

Hey, yeah, thanks, guys. Good afternoon. Thanks for taking the question. And, yeah, congrats on the solid results here relative to the guide. I want to just ask about margins, and I have a few day questions I want to ask you here, but they're all margin-related. I guess the first is with regards to, you mentioned, I think, 90 days ago that December quarter, you expected to be sort of the low-water mark quarter in gross margin, and you're guiding for q over q improvement for the march quarter um do you still think that things progress expansive from here charles you made some uh some comments around customer mix uh it's been ahead when do you think it continues to improve and i have two quick follow-up stay just margin related after that thanks yeah thank you for the question yes the customer mix uh we are improving uh quarter

of the quarter now we have many more large-scale customers i would like to say so that will improve our profitability the other factor is uh last quarter i mean december quarter uh gp3 entry was a little bit new to us so a lot of our expertise transportation costs and now i mean And product is getting mature, so those expertise transportation costs will be tremendously reduced. And tariff impact also improving. And so overall, especially at DCPPS, also increasing for our net, for our gross margin. So I believe our gross margin will start to improve quarter after quarter.

Charles, that's great context. Really appreciate it. And actually, Charles, one of my two clarifications here is from something you said in your prepared remarks. You said higher net margin. And so I guess you just clarified you expect gross margin to go up. Maybe this is a Charles-Dave question. Dave, you mentioned OpEx leverage. The OpEx as a percentage of sales was really attractive this quarter. It's like one and a half percent, I guess less than two percent. But should we expect, I think it's the second quarter in a row, you drove OPEX leverage last quarter, just September quarter for the first time in a while. But now you have this really attractive, the most attractive OPEX has presented your revenue in a while. So is the company entering a period of not only gross margin expansion, but OPEX dollar leverage as well, structurally? And that's it for me, guys, thanks.

Yes, exactly. I mean, economical scale will help us to improve the cost, our cost, right? So that will impact our gross margin and especially our operation margin. And, again, DCPPS brings supermicro for more business in service, in software, in overall infrastructure, service to customer. So all those factors are positive to our margin improvement.

Very helpful contact. Thank you, guys. Really appreciate it.

Thank you. Thank you for your question. Next question. from the line of Sonic Chatterjee with J.P. Morgan, your line may open.

Hi. This is MP on behalf of Sonic Chatterjee. I just wanted to double-click on your full-year guidance. You said $40 billion for FY26. If I back into the implied 4Q number that implies significant quarter-over-quarter moderation.

So is that just conservatism being embedded into the full-year outlook, or do you see definite indications from your order trends that 4q will imply sequential moderation and i have a follow-up as well yeah i believe we say minimum 40 billion is a relatively conservative number so our business indeed will continue to grow especially our dc dps that uh attract and also customers who want to build a data center quicker, less power consumption, less cost, I mean, data cost, and also more reliable and easy for management. So we are getting more and more customers come to us.

Thank you. And for my follow-up, I wanted to ask about DCBBS. You highlighted it being 4% of profits in first half. Can you please help us understand the contribution in terms of revenues? And then you also said it will increase to double-digit contribution by end of calendar year. So how does that translate to overall gross margin trajectory? Thank you.

Yeah, thank you. I mean, as you know, DCPPS is still a new product line to us. We officially introduced that product about six months ago. So now first two quarter, I mean, September quarter plus December quarter. Indeed, it is our first two quarter. So the revenue is still relatively small, but because the profit is much better. So overall is a contributor, about 4% to our overall profit in that six months. And looking forward, it will continue to grow very quickly. So we are very happy to see more and more customers like DCPPS to spear their data center view out with EDR for management, EDR for maintenance, and our public well-container flow because of DCPPS especially.

Thank you.

Thank you for your question. Next question is from the line of Asia Merchant with Citi. Your line is now open.

Thank you for taking my question and good results here relative to the guide. I just had two quick ones. One, just, you know, there's a lot of discussion about component availability, supply constraints. If you could just talk to us about your guide and relative to that, you know, is that minimum $40 billion guide, you know, a constraining number given the supply constraints? In other words, if supply wasn't an issue, could that number be greater? And then just on customer concentration, you know, I think the commentary suggested that some of the geos did decline on a year-on-year basis as well as on a quarter-on-quarter basis. So, again, relative to the guide, how should we think about the ramp of DCPBS across those various geographies for the back half of this fiscal year and through calendar 26? Thank you.

Yeah, you are right. We already consider the components price keeping growing. So with that, that's why we try to be conservative, kind of commit to $40 billion. Even the cost, even the shortage situation improve quickly, for sure. Our revenue will be more than that. And as to DCPPS, it's globally, almost every region, customers like DCPPS, because it helps them easier to build a data center. It's kind of like a one-stop shop. We provide not just computing, storage, switch, and liquid cooling subsystem, including battery cell, including some energy backup. So, it kind of makes customers' job to build a data center much easier. So, the impact is global. We see global-wide more and more customers like our DCPPS solution, and we are aggressively preparing to grow the support.

Thank you.

Thank you for your question. The next question is from the line of Catherine Murphy with Goldman Sachs, your line is now Thank you very much.

To ask another question on the new DCBBS disclosure, encouraging to hear that growing to double-digit share of profit by the end of calendar 26, can you talk about the investments that you need to make here to expand the capabilities? I know, Charles, you mentioned some in the prepared remarks, as well as your go-to-market offering to have this increased penetration of DCBBS. And then I have a quick follow-up as well.

Yeah, indeed, we started to develop our DCPPS pretty much about 12 months ago. So we already consistently invested in that area. And so far, we have about 10 items, including a CDU, including a Chioto, including a PowerShell, battery backup, water tower, management solar air. So we have about 10 items available now. And we will introduce another three to five items in the next few months or next few quarters. So the data center building block solution will be getting more complete, and that's why it will be easier for customers to build a data center. It's not just easier, quicker to build their data center, but also make their data center modularized. So it's easier for management, easier for maintenance, and easier for scale-up.

Great. Thank you very much. And just on the margin profile of DCBBS, could you remind us what you said in the past about what that looks like relative to the sales that you typically have towards your large NeoCloud and GPU-as-a-service customers?

For sure, gross margin and margin are much higher for DCBBS because it's so unique. And, again, we are the first company that are pre-designed, pre-validated, pre-optimized data center solution for customer. So the margin is much better, but you are more than 20%. And we are happy to make the product line really strong, really complete, as soon as possible.

Thank you very much.

Thank you.

Thank you for your question. The next question is from the line of Ruflu Bhattacharyo with Bank of America. You're going to have that open.

Hi. Thanks for taking my questions. For the first one, I'll ask a follow-up on margins. David, you mentioned expedite costs, component cost increases, shortages, and I think last quarter you talked about increased investment in engineering support and services to help new customers. Can you help us size all of these things? How much did they impact gross margins in the December quarter? And what's baked into guidance as impact from these things in the March quarter? And I have a follow-up.

Yeah, we don't break those things out, Ruplu, but we can just say that the costs were up in each of those areas. So, in other words, higher transportation and expedite in order to move things around and get things delivered to the customer faster. But we have – I can tell you that over, you know, the past year, we've had, you know, increases as we have, you know, ramped up the new technologies and prepared for, you know, mass shipments.

Okay. As a follow-up, can I ask – I think you – or Charles talked about component shortages and you're being a little conservative on the guide. Are component shortages, like which areas are they in, and then component cost increases, are they actually impacting data center demand either on the AI side or on the regular non-GPU server side? Are component cost increases a real factor? And if I can sneak one more in this DCBVS product that you have, can we infer anything about the type of customers who are buying that? like if you're thinking that you're going to sell more, it's going to be more, a bigger percent of your sales, does that mean that the customer mix is also changing? Do Enervite customers use more of these, or what type of customer likes to use more of the DCBBS packaged solutions? Thanks for taking my question.

Thank you for your question. Indeed, the key component shortage at this time is the main reason because the AI and the large data center demand are growing. So the shortage is because the demand is getting so strong, not because the production capacity is reduced. So that's a good sign. So basically it's because the industry is growing. And we are part of the major growing company. So that's why I believe the impact to us, yes, the cost will be impact, but won't hurt us too much. That's the first question. And second, I mean, DCPPS, who needs DCPPS? I would like to say older people like to build a data center. Doesn't matter if they are large scale, middle-sized scale, or small scale. Because our DCPP is just simply to provide more choice for customers to go for a one-stop shop or buy everything from everywhere by themselves. And obviously, a one-stop shop saves their time, makes sure when they put things together, it works. And quickly, when they put things together, it works and optimize. That's why it's optimized not just time to delivery, But time to online, customer use our DCPPS data center can go for online, go for operation quickly. So, I would have to say global people need a DCPPS kind of building block solution.

Okay. Thanks for the details.

Thank you. Thank you for your question. Next question is from the line of Nihal Chokshi with Northland.

Your line is now open. congrats on the strong results and guidance. A little bit of a different question here. So, look, Supermicro brought DLC to the market one generation faster than when it became part of NVIDIA reference architecture. Now apparent that Supermicro is brought to the market one generation faster, dry cooling towers, which is related to higher inlet temperatures as part of Rubin reference design. My question is that do you expect Supermicro to continue to bring to the market one generation faster these power efficiency advantages before NVIDIA makes it part of their reference architecture? Is this going to be part of Supermicro's branding?

Yeah, as you know, NVIDIA is a very strong company, and we work with them very closely. However, because of our strong engineering background, our big engineering team, so before we are able to make our total solution one generation or six months earlier than others. Now, and in the future, I believe we will be still able to bring a total solution to market earlier than others, especially help customers, build a data center, build their cloud, AI cloud, time to online quicker than others, if not six months earlier, at least three months or four months earlier, and that's still a big help. So I'm very confident that our future growth should be still really strong.

I agree. And then for my follow-up question, your 10% customer, was that the primary driver of the upside that you saw in the quarter? Do you expect them to remain a 10-plus percent customer in the March quarter? How should they project? And then you also did sign DataVault, a pretty big contract with DataVolta six or nine months ago, is that starting to ramp in as well?

Basically, because our foundation is getting much stronger than before ever, especially our kind of total solution, data center building for our total solution is strong. So we are getting broadly good customer from the older territory. So more than 10% or not is hard to say, because now our revenue will grow very fast. Very soon, I hope I can say we have more than 50 or 60 billion dollars revenue. Not today, but hopefully very soon. So more and more large customers are working with us. So that's a very exciting condition.

Thank you.

Thank you.

Thank you for your question. The next question is from the line of Quinn Bolton with Needham & Company. Your line is now open.

Hey, yes, let me add to congratulations on the nice outlook. I guess, Charles, David, you had a 53% customer in the December quarter. As you look at sort of the second half of fiscal 26, do you expect revenue to diversify significantly, or do you think that that large customer continues to be pretty concentrated in the March and the June quarters, and then I've got a follow-up?

Sometimes it's not easy to predict, because customers sometimes shift their schedule of pulling in or pushing out. So, but overall, we are very happy that now we have many more large-scale customers. So, the customers are more diversified, and overall revenue will grow quickly. And at the same time, DCPPS and solar air grow our value. So overall, we are on a very healthy track now.

So understanding that the customer has been pushing a pullout right now, the forecast shows increasing diversification over the next couple quarters.

Yeah. I mean, because of growth, it's still very fast. That's why now we are focused on more about how to kind of maybe – what should I say? Kind of how to grab more money to grow even faster, right? So if we have more cash, we can grow even faster. But even if we do not grab more money, I guess because the most diversified customer base. and also a more higher-value system, more higher-value total solution. So that will help us grow business.

And my follow-on, Charles, in your prepared comments, you mentioned the upcoming platform transitions to Vera Rubin and the Helios system from AMD. I'm just wondering, have you guys started to get orders for those systems for delivery in the second half, or is it too early to start to get orders for those systems?

Yes, we have a lot of highly interested customers, some already engaged, and we hope we can deliver as soon as possible, but still, it depends on our partner, depends on when they are better developing or AMD solution will be ready. So we are working very closely with them. Once they are available, we like to deliver to customers quickly. And, yes, today we already have some good commitment from customers. Thank you.

Thank you for your question. Next question is from the line of John Tong-Wensing with CJS Securities. You'll have to open.

Thank you for taking my questions, and congrats on a nice quarter and outlook there. I just wanted to ask a little bit more about the big versus smaller customer mix that you're expecting in the future and the pipeline that you see. Are you expecting smaller customers to become a greater percentage of sales, or is it the opposite? And the reason I ask that is because these bigger customers seem to have that pricing leverage you mentioned. If you have any color, that would be helpful.

Yeah, thank you for the question. Yes, we understand we need more customers, especially a more diverse customer phase, enterprise. So we are very aggressively growing enterprise, mid-sized, or different kind of enterprise customers as well. So, I mean, our customer diversify is a very important direction to us now. So I guess we will grow both a large customer and lots of high number of enterprise accounts.

Okay, got it. And then just on the Vera Rubin question, and I guess the migration to the 800-volt data center, I was wondering if there's any opportunity for you to drive greater differentiation in this next cycle upgrade compared to the past couple. Is there anything about the whole platform and data center architecture that gives you more or less opportunity compared to the last cycle of Blackwell and Hopper?

Yeah, I mean, that's why I say we did provide a very good solution. And based on that, we optimize the whole data center building both solutions for our customers and aim to help them do the data center quicker and more reliable, easy work management, and the lower rail costs, including energy consumption, including energy backup, and maybe too early to say, including energy kind of grid power replacement. So we have a complete plan for the whole solution, but some other systems are still too early to say too much at this moment.

Okay. Thank you very much.

Thank you.

Thank you for your question. Next question is from the line of Malik Newman with Bernstein. Your line is now open.

Yeah, it's Mark Newman.

Thanks for taking my question. And congrats to get on. Great call on great outlook. Just curious, you know, just take a step back. I mean, what's changed? You've got a big step up here in sales. Gross margins down quite a lot. but you're guiding forwards for solid sales to continue. So is this just a reflection of a tougher pricing environment and Supermicro having to react to tougher pricing environment and thus winning back more share? Or is this just catching up to, as you referred to the previous quarter, Previous couple of quarters, you mentioned about a few orders getting pushed out. So is this just catch up of the orders or is this a reflection of a more aggressive pricing strategy? And I guess importantly for me, like trying to think about forward estimates going forwards, I mean, you guided for the short term, but how do we think about gross margins longer term? Is this kind of range here to stay, or are we looking at getting back to, you know, into the low, you know, high single-digit, low double-digit range versus margin like you were before? Thanks very much.

Yeah, thank you. As an engineering company, you know, we for sure have some choice. We can continue to grow larger accounts aggressively, or spend more effort to develop technology, good product, and to grow more enterprise account. So we are doing both ways, basically. And so the gross margin, net margin ratio, we are expecting to grow to a double-digital as soon as possible. David, you may add something.

Sure. We think that we've established ourselves with a number of deployments that we've made as being really the premier provider of the most current technologies that are available on the market. And we think with those strong installations, we've broadened our reach into the market. And so we think that, you know, we're trying to target, you know, both, as Charles mentioned, both large-scale and, you know, smaller-scale customers and mid-tier customers. But we want to serve, you know, all the customer bases that are out there and that are attracted to our products and bring them the very best technologies. We think ultimately that drives the margins.

Thank you for your question.

Oh, we just think that's the – Next question is from the line.

Brandon with KeyCorp.

Hey, guys. Just, I think, a couple of quick clarification questions. One for David. David, you raised some new capital this quarter. Maybe just help us understand how you're thinking about working capital for the rest of this year. And then other income came in, about $50 million above your guide. Really, what drove that? And then just one quick follow-up question.

The other income was just higher interest income that we had because our cash reserves had grown, and so we were earning good interest income. However, that was quickly taken up by the fact that, as I mentioned last quarter, we had well in excess of $13 billion of orders for purchase orders for delivery. And so we immediately had to use that. That's why our accounts receivable, our inventory went up, and so we took in not only two different $2 billion or two and $1.8 billion credit facilities, we also set up an accounts receivable factoring. So we have access to, you know, over $5 billion of additional capital. And, you know, if we continue to have growth, then we have access to additional capital in the marketplace. But right now, we think that, you know, for the current outlook, we have adequate capital to meet our needs.

And when I say current, I mean, you know, we have some of the quarters. Got it. But just on the factoring, the securitization facility, did you utilize that at all this quarter? And then on the 63% customer, was that a previous 10% customer? Thanks.

So to the first question, we did not use it during the December quarter, but we have subsequently. To your second question, Supermicro does most of its business with repeat customers. So I'll just leave it at that. But at the same time, we added lots of... We've added a lot of new logos at the same time. And it's because of those successful customers.

Okay, but we don't know if the 63% of customer is new to the 10% customer mix or if it's a previous 10% customer. Is that right?

Yeah, I'll just refer you to the 10Ks and Qs on that.

Okay. Thanks for taking the questions.

Yeah, by the way, I do want to clarify one thing in my narrative regarding the fully diluted share count. So the GAAP fully douleted share count increased sequentially from 663 to 694 million shares. And then the non-GAAP share count increased from 677 million to 709 million. So there was just a – I noticed a typo on there, so please forgive the correction.

All right. Thank you, everyone, for joining us. I just want to just inform you that we had heard there were some technical difficulties with our webcast provider. A replay will be provided after the call, so you can catch up on that. Thank you for joining today.

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