Operator
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 the Super Micro Computer, Inc. Q4-FY26 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 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 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Michael Stager. Please go ahead.
Thank you, Jen. Good afternoon, and thank you for attending Supermicro's call to discuss financial results for the fourth quarter of fiscal 2026, which ended June 30, 2026. With me today, as you know, are Charles Leang, Founder, Chairman, and 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 training 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 Investor Relations section of the company's website under the Events Presentations tab. We've also published management scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist 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 first quarter of fiscal 2027 and the full fiscal year 27. 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 and materials to differ from those anticipated, then you should not place undue reliance on forward-looking statements. You can learn more about these risks, uncertainties, and the pressure release we issued earlier today, our most recent 10K filing for fiscal 25 and other FCC filings. All these documents are available on the IR page at the Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP initial results and business outlook. For any explanation of our non-GAAP financial measures, please refer to the 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 how the company's 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 and non-GAAP results contain In today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks will have a Q&A session for self-taught analysts. Our fiscal 26, 27, excuse me, quiet period begins at the close of business of Friday, September 11th, 2026. I will now turn the call over to Charles. Thank you, Michael, and thank you all for joining today's call.
Fiscal year 2026 was a historic milestone for Shibu Michael, as we nearly doubled our revenue year over year, growing from $22 billion last year to $39 billion fiscal year 2026. The world has been transformed by AI, and Shibu Michael is transforming us well. from a USA-based server manufacturer into a leading AI-IT data center total solution company. We design and manufacture our total data center building block solutions, DCPPS, in the USA with many facilities in USA, Taiwan, Manusia, and Residence. The demand for our AI IT solutions is even stronger than ever before, as we are transforming into a total DCPPS company, a one-stop-shop company for customer who want to build their data center or AI factory quicker and better. in our free announcement which is close over 60 billion in new orders driven our order book and backlog to a new record levels as we enter fiscal year 2027 while q4 revenue came in at 11.1 billion Due to some short-term customer delay in power shortage, cooling and networking, we know this is purely a coming story. The good news is that now our customer can easily leverage our unique DCPPS total solution advantage and upcoming new technology and products to accelerate their time to deployment, we call TTD, and time to online, we call TTO, ensuring a strong future growth and long-term value for supermarkets for many years to come. Most importantly, our focus on profitability is yielding clear results. For the first quarter, I'm happy to report Langep gross margin of 17.6% and $1.70 in Langep dilute earnings per share. This margin expansion mainly came from our strategy focused on balancing customer mix and product mix, while having a few one-time positive contributions for the quarter. Since early 2026, we have dedicated departments and resources to focus on growing enterprise customer base and have expanded our enterprise CPU-based server storage and IoT product lines. Our quick-growing, influencing, and authentic AI-centric products are also achieving healthier profit margins for the company going forward. Another key to this margin expansion is our DCPPS, BPS, which delivers total solution value by seamlessly integrated GPU and CPU server, enterprise storage, interactive cooling solutions, CDU, chill door, water tower, high-speed data switch, and networking, data center management software, and and full-life cycle services. This turnkey ecosystem enables customers to build and scale AI data centers in quarters rather than years, dramatically reducing TCO and accelerating time to online and time to revenue for customers. We are further elevating this value proposition with our new proactive service model, where our data center management software and feed teams will automatically alert and be ready immediately to fix or maintain the failures unit, preventing reduction of computing power at the customer data center. As a new software, as a new software with powerful management features and automatic service attached to our hardware tools. They depend customer trust and drive a long-term value. Our PCPBS is getting very powerful and it will soon contribute a significant net income to our business. by early next quarter more of those solar features and service products will be online on the operation side we are complementing this high value strategy by achieving higher manufacturing years through factory automation design optimization and our highly versatile At the same time, we remain very focused on logistics and inventory management, significantly reducing inventory reserve and expertise charge. Together, these operational disciplines will have moderate quarter-to-quarter margin fluctuation driven by uneven customer and product mix supporting our goal of consistent growing gross margins. Turning to our key product domain, our system building block allows us to quickly optimize every major silicon platform. Through our long-term NVIDIA partnership we are shipping volume skill across the GP 300 and we are 72 HGX B300, B200 MVL4 and RTX 6000 pro. While preparing for the market for our We are MVL72, Lupin HGX, and VERA-C1, and other high-density VERA systems. With AMD, we launch complete new Helios product line and MI450 total solution alongside strong EPIC CPU MI350 and MI355 X Momentum. Working with Intel, we brought Passer-DAC Edge AI system to market and shipping Geon 6 Plus platform in volume. We also dedicated on developing products for the strong demand of ARM-AGI process-based code and finish architecture optimized for high performance per watt invention workloads, demonstrating our silicon partners deep confidence in our engineering excellence. To support a massive demand, we continue to expand our physical footprint. In Silicon Valley, we recently announced our new 32-acre PCBBS campus featuring advanced optical photonics, networking lab, and data center scale manufacturing, which brings our USA footprint to nearly 4 million square feet. Globally, our facilities in Taiwan, Malaysia, and the Netherlands are also ramping strongly to meet the demands, putting our total manufacturing capacity on track to exceed 6,000 racks per month, including more than 3,000 directly cooling racks per month. Especially, most of our DLSE direct production mines support our most dense, that is 250k wire direct platforms. Before I close, a quick update on our capital structure. Following our $5.6 billion financial injury, our balance sheet fully supports our components supply and business needs. Thank you to our strong cash position and more favorable customer and product mix. We currently have not planned to utilize our APM program, which we initiated a few months At the same time, we remain focused on building financial efficiency. Within all of these operational and other advancements, I want to emphasize that our growth momentum is accelerating where it matters most. By expanding hundreds of new enterprise customers and other customers, and leading the transition into an agentic and specialized AI workflow, Supermicro has become a fundamental aspect of today's AI platform. Our DCPPS total solution, depending CPU and GPU compute, storage, energy, and 1.6p high-speed switch Upcoming optical networking and our management software suite, including SCF, Supermicro Cloud Composer, SDM, Supermicro Terra Center Manager, and SOM, Supermicro Operator Manager, delivers the complete one-stop-shop experience than modern enterprise, near cloud, and any other data center customer needs. Looking to fiscal year 2027, our momentum gives us strong confidence to target our revenue in the range of $65 billion to $72 billion, as we are in the process of historic infrastructure We are balancing top-line expansion with bottom-line profitability by focusing on growing enterprise customer pace, customer mix, PCPPS solutions, and operational disability. We are shaping the future of AI technology while delivering true technology value to our customers. I'm very confident that fiscal year 2010, fiscal 2027 will be our strong and possible year again. Thank you. And I will now turn that over to David.
Thank you, Charles. We are pleased to record record fiscal year 26 revenue of 39.1 billion up 78% over fiscal year 25 revenues, and $22 billion in record non-gas fully diluted EPS of $3.63, up 76% over fiscal year 25 EPS of $2.06. Our fiscal year 26 ending backlog was at a record level, with over $60 billion in new orders received during Q4 fiscal year 26, which we expect to fulfill over the coming quarters. Non-GAAP gross margins for fiscal year 26 were 10.9% versus 11.2% in fiscal year 25. Our fiscal year 26 non-GAAP operating margins expanded to 8.1% from 7.1% in fiscal year 25. Our customer base is diversifying, and we had nine customers in fiscal year 26 with revenues greater than $1 billion each versus four such customers in fiscal year 25. Turning to fiscal Q4, fiscal year 26 results, we achieved revenue of $11.1 billion, up 93% year-over-year, and up 9% quarter-over-quarter. Revenue was near the low end of our guidance range of $11 billion to $12.5 billion due to delays in customer readiness, and we anticipate this revenue to be recognized in subsequent quarters. These AI solutions, our AI solutions contributed approximately 60% of total revenue in Q4 versus over 80% in Q3 due to the timing of some large AI project ramps. Based on our backlog, we believe greater than 80% of revenues will be AI-related solutions going forward. During Q4, enterprise and channel revenue was $5.6 billion, representing 50% of total revenue compared with 28% in the prior quarter. Revenue in this segment increased 172% year-over-year and 98% quarter-over-quarter. During Q4, we saw a pickup in demand from enterprise and channel customers, which were upgrading their compute, storage, and network infrastructure with more efficient CPU platforms. OEM appliance and large data center revenue was $5.5 billion, also representing 50% of total revenue, compared with 72% in the prior quarter. Revenue in this segment increased 50% year-over-year and decreased 26% quarter-over-quarter. For fiscal year 26, enterprise and channel revenue grew 39% and represented 31% of total revenue. The OEM appliance and large data center revenue grew 104% and represented 69% of total revenue. For fiscal year 26, we had one large data center slash CSP customer, which represented 28% of revenue. By geography, the U.S. represented 71% of Q4 revenue. Asia represented 11%, Europe represented 8%, and the rest of the world represented 10%. On a year-over-year basis, revenue in the U.S. grew 259%. Asia decreased 50%. Europe increased 4%, and the rest of the world increased 296%. On a quarter-over-quarter basis, revenue in the U.S. grew 12%, Asia decreased 13%, Europe increased 25%, and the rest of the world increased one percent. Q4 non-GAAP gross margin was 17.6 percent versus our guidance of 8.2 percent to 8.4 percent. This was up from 10.1 percent in Q3. Gross margins improved by 750 basis points sequentially due to a better than anticipated customer and product mix, including the deferral of several contracts from Q4 fiscal year 26 to Q1 fiscal year 27 and and perhaps the subsequent quarter. This favorable mix contributed approximately 75 percent of the gross margin improvement. Lower tariff costs and lower inventory reserves drove the remaining 25 percent of the gross margin improvement q4 gap operating expenses were 455 million up 44 percent year-over-year and 16 percent quarter-over-quarter on a non-gap basis on a non-gap basis operating expenses were 357 million which was up 49 percent year-over-year and 28 percent quarter-over-quarter However, the sequential increases in both GAAP and non-GAAP operating expenses primarily reflected higher headcount related expenses and sales and marketing expenses. Non-GAAP operating margin was 14.3% in Q4 compared with 7.2% in Q3. Other income and expense for Q4 was a net expense of 19 million, consisting of 61 million in interest and other income, offset by $80 million in interest expense related to our convertible notes and revolving credit facilities. The Q4 tax provision was $290 million on a gap basis and $316 million on a non-gap basis. The Q4 gap tax rate was 19.7%, while the non-gap tax rate was 20.1%. For fiscal year 26, the GAAP tax rate was 19.9% compared with 12.9% in fiscal year 25. The non-GAAP tax rate was 20.4% compared with 15.4% in fiscal year 25. Q4 gap diluted earnings per share was $1.62, compared with our guidance range of $0.53 to $0.67. Non-gap diluted earnings per share was $1.70, compared with our guidance range of $0.65 to $0.79. The results exceeded our guidance primarily due to higher gross margins. For fiscal year 26, GAAP diluted earnings per share was $3.26, compared with $1.68 in fiscal year 25. Non-GAAP diluted earnings per share was $3.63, compared with $2.06 in fiscal year 25. The GAAP diluted share count increased sequentially from 692 million shares in Q3 to 705 million shares in Q4. The non-GAAP diluted share count increased from 709 million shares to 721 million shares over the same period. Cash provided by operating activities in Q4 was $747 million compared with cash used in operating activities of $6.6 billion in the prior quarter. For fiscal year 26, cash used in operating activities was $6.8 billion compared with cash provided by operating activities of $1.66 billion in fiscal year 25. Q4 closing inventory was $12.9 billion, up from $11.1 billion at the end of Q3. CapEx totaled $28 million in Q4, resulting in free cash flow of $722 million. For fiscal year 26, CapEx was $162 million, compared with $127 million in fiscal year 25, as we invested in our expanding capacity. globally. During the quarter, we completed public equity offerings, raising $5.6 billion after offering expenses, comprising $1.4 billion of common stock and $4.2 billion of mandatory convertible preferred shares. The proceeds from these offerings will be used primarily to support increased working capital needed to support our new orders. At quarter end, cash and cash equivalents totaled $7.5 billion. Bank borrowings and convertible note debt totaled $8.7 billion, resulting in net debt of $1.2 billion, compared with net debt of $7.5 billion at the end of the prior quarter. Turning to the balance sheet and working capital metrics, the cash conversion cycle increased by 43 days from 106 days in Q3 to 149 days in Q4. Days of inventory increased by 13 days to 119 days from 106 days in the prior quarter as we built inventory in anticipation of higher revenues going into fiscal year 27. Days sales outstanding decreased by 26 days to 59 days from 85 days in Q3 as we realized collections from some large customers. Days payables outstanding decreased by 56 days to 29 days versus 85 days in Q3 due to a significant reduction in our average days payables between Q3 and Q4 due to the completion of some large AIGPU projects and the timing of payments to suppliers. Going forward, we expect the cash conversion cycle to normalize based on terms that we have in our current backlog. Now turning to the outlook for Q1 fiscal year 27, we expect net sales to be in the range of $14.5 billion to $15.5 billion, GAAP diluted net income per share to be between $0.89 and $0.98, and non-GAAP diluted net income per share to be between $1.01 and $1.10. Based on the expected customer and product mix, we expect gross margin to be in the range of 10.4% to 10.8%. We successfully completed the issuance of $4.2 billion of mandatory convertible preferred shares in Q4. Due to that issuance, our GAAP and non-GAAP EPS is computed based on the two-class method in which we allocated a portion of our net income for participating convertible preferred shares. This impacts our Q1 FY27 EPS guidance and should be considered in all EPS calculations going forward. Please see the earnings release tables for further details. GAAP operating expenses are expected to be approximately $453 million, including approximately $127 million in stock-based compensation expenses, which are excluded from non-GAAP operating expenses. The outlook for Q1 of fiscal year 2027 fully diluted GAAP earnings per share includes approximately $106 million in expected stock-based compensation expenses, net of tax effects of $32 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expense, including interest expense, to result in a net expense of approximately $45 million. The company's projections for Q1 fiscal year 27 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 20.1%, a non-GAAP tax rate of 20.5%, and a fully diluted share count of 745 million shares for GAAP and 761 million shares for non-GAAP. Capital expenditures for Q1 are expected to be in the range of $50 to $60 million. And for the full fiscal year 27, we expect net sales to be in the range of $65 to $72 billion. Michael, we're ready for Q&A now.
Operator
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 1 to raise your hand. To withdraw your question, press star 1 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 Amanda Barua with Lube Capital. Your line is open. Please go ahead.
Yeah, guys. Thanks for taking the questions. I have two if I could. And congrats on the strong results and the ongoing improvement and profitability here. And let me start just with that. Charles, Dave, what's a good way to think about what fiscal year 27 gross margins can be? You benefited from mix in June. Sounds like you're absorbing some of that mix. from deal push-out in September, it's still a nice improvement, apples-to-apples in gross margin guide. Can you walk us through how we should think about sort of the puts and takes on the margins, mix CPU, things like that? And number one, how should we think about what you saw estimate for gross margin of 50 or 27 and what may be the progression?
And then I have a quick follow-up. thanks okay thank you for the question yes i mean uh we will be very carefully uh control of balance between uh revenue and profitability as you know uh high volume gpu margin usually much lower cpu storage iot enterprise application on the other hand have a higher margin so we will try to a balance between the two vertical especially last 12 months we have continued to grow sales force in the enterprise and application server application storage so looking for all we will consistent consistently growing our overall gross margin although we will still grow very aggressive very faster than gpu but we we will focus much more than before on enterprise and cpu storage and also like dcps uh dcps product line is getting uh mature so we are shipping more and more dcps hardware, and also software service, and some switch as well. So, the BCPBS will be our long term much better profit margin product line.
And so, just to clarify before my second question, Charles, I believe I heard you say you anticipate margins to improve from September quarter levels, given the factors that you just mentioned. Is that hearing you correctly there?
September, which is September?
Yeah, so we guided to 10.4 to 10.8 for September. And we're doing everything we can, as Charles mentioned, to, you know, to find the best margins that we can.
Okay, that's great. And then the follow-up is, maybe just to dovetail off of Charles' CPU remarks, sounds like you had 80% of revenue with AI in your Q3, 60% in Q4, looking for 80% again in Q1. Charles talked about taking on more CPU servers, storage and networking. What is a useful way to think about what that sort of 20% that's not AI, what is that? And then if I could just squeeze in quickly, any update on the board investigation, the board inquiry, I assume it's coming close to completion, but any update there would be great too. And that's it for me.
Yeah, it depends on customer mix, and when large data centers order a lot, for sure, AI percentage will be higher, but when David say 80% will be AI, I believe that includes two much segment. One is traditional AI, the other one is application AI, authentic AI, or age AI. So, the pure AI will be about 60% to 70%, while another 10% to 20% AI will be CPU-based AI, or kind of authentic AI, edge AI. And the other 20% would be pure, traditional server storage, IoT. So, I get it 100%.
As to your second question, Ananda, we expect to provide an update shortly, and that's all we can share on this call.
Thanks so much, guys. Really appreciate it.
Operator
Your next question comes from the line of Joseph Cardoso with J.P. Morton. Your line is open. Please go ahead.
Hi. Thank you for taking my question. This is N.P. on for Joseph Cardoso. For my first question, I just wanted to double-click on your robust orders, which you saw during the quarter. You mentioned 60 billion-plus orders. Maybe anything in terms of customer concentration within that order growth, which you saw as well as any more incremental color in terms of what really was the driver behind such robust uptick in orders there, and I have a follow-up.
Yeah, I mean, around $60 billion, I would have to say 70% are AI, pure AI. The other 30% is either CPU or CPU-based AI or kind of H-AI application. So overall, I believe our profit margin mix will be getting better.
Okay, got it. And for my follow-up, just wanted to ask in terms of you mentioned that you did some success in terms of customer diversification where you have, I think, nine customers, which are $1 billion plus during FI26. Anything in terms of the nature of those customers, maybe in terms of your cloud versus enterprises versus sovereign AI customers, any more incremental color, they will be helpful.
Yeah, so we have a lot of emerging, you know, neoclouds and CSPs. And so they were, and some enterprise customers that were in that mix that we mentioned.
Yeah, the question is CPU-based AI, for example. Invidia now also have a Bera CPU-based AI. That's from Invidia. And AMD CPU-based AI and base, right, and interface. So now the AI is kind of a majority still GPU-based but still the CPU-based AI is also going quickly, especially for a genetic AI application.
Operator
Your next question comes from the line of ASEA Merchant with Citi. Your line is open. Please go ahead.
Great. Thanks for taking my question here. Two, if I may, one of them was just, was there any change in, you know, buying patterns specifically for the large DC and CSP customers? I understand that there was a shipment delay into 1Q. From what I understand, the guide incorporates that the shipment from 4Q would be shipped into 1Q. But are you sensing any change in the buying patterns from these large data center CSP customers that you're predominant in? And, you know, because there seems to be some investor concern that maybe these customers are going more directly to ODM than they have been typically to the likes of Supermicro. And then I have a quick follow-up.
Okay. Yeah, for sure. So, I mean, large data center always have power readiness, data center readiness concern, especially liquid cooling. So, our customer base overall have a similar concern as well. But still, basically, the older shipment for September quarter, December quarter, have been quite strong. And also, I mean, Supermicro business model is a bit special, indeed, quite special. We have OEM business, but we also cover ODEM business. So, we have lots of data center, large data center customer now, and especially kind of new cloud. And at the same time, we are growing very aggressively for enterprise server, a traditional server and storage. So, overall, we are kind of, again, both, ODM and OEM, we will continue to grow in both ways.
Okay, thank you. And for my follow-up, the Liquid Cool Data Center, are you able to provide what percentage of revenue sales are, and, you know, if you can give any further details on verticals between enterprise versus these large data centers slash TSP customers that you have for the liquid cool data centers.
As you know, I mean, we are one of the very early liquid cooling technology leaders. 2024, for example, we ship, I guess, 80% plus liquid cooling to the market. And now more and more platforms are liquid cooling already, including the GPU liquid cooling and CPU liquid cooling. Like Baylor, Lubin, and even Baylor, Baylor's CPU base. Lots of our Baylor CPU base will be liquid cooling as well. And some AMD, Intel CPU, also liquid cooling. So overall, the recruiting will continue to grow quickly, and very soon will have dominated our data center business, I believe.
Operator
Your next question comes from the line of Catherine Murphy with Goldman Sachs. Your line is open. Please go ahead. Thank you very much.
Charles, you noted that you're making investments into the sales force to address the enterprise opportunity specifically. Can you talk about the progress that you've made here and what further investments need to be made in both go-to-market and in the product features and capabilities of Supermicro's portfolio in order to better address this opportunity and if this run rate OPEX level is the right way to think about the full year. Thank you very much.
Thank you, Nick. Sure. So I'll address the question on the operating expenses. So there are certainly some expenses that we expect to go up and others that we expect to come down, and so we think that the levels that we have will, are at the proper level. And if you look at our historical growth rate in operating expenses, you know, it's less than half of our revenue growth rate.
As a technology company, our investment in the new technology continue to be very aggressive. For example, the high-speed switch, the optical technology. So overall, our data center total solution with our DCPPS-centric handle focus will be continually strong.
Thank you. And could you talk more about the sales force and how you're engaging with this expanded enterprise customer set, understanding that this is a broader opportunity than the types of engagements that Supermicro may have had in the past?
Yeah, hey, this is Mike Stager. I just want to chime in on Salesforce, some of the Salesforce changes. And you probably saw that we elevated a few of our individuals, Matt Bubber is Chief Revenue Officer, Vic Mayall is Chief Business Officer. And there's been a focus on efficiency and aligning the Salesforce with a solution sale element to address the AI opportunity ahead, which, you know, is supportive of better margins. And so, there's definitive actions in place to make those improvements, and we'll keep it posted as we go out through the year as we expand and make those changes to address market opportunities.
Thank you, Mr. Tom. As a technology leading company, before we are mostly focused on engineering, production, customer service, but now we get in focus much more enterprise and growing our overall balance, especially enterprise, as you know, the profit margin is always better. So we are growing our sales force gradually now.
Operator
Your next question comes from the line of Rupalu Bhattacharya with Bank of America. Your line is open. Please go ahead.
Hi. Thanks for taking my questions. David, given the pace of GPU platform transitions, how are you managing inventory risk around each new generation? And what gives you the confidence that the record order backlog that you now have won't result in significant inventory exposure if customer deployment schedules or platform configurations change? I'm asking this because Supermicro has had some issues in the past, and I have a follow-up.
So I think everyone in the industry and our industry has to watch out for changes in technology. But what we've found was with prices rising so fast, a lot of times now some of the old inventory does get resold favorably. Nonetheless, as you point out, you don't want to get caught having to hold that inventory. There is risk in that. So, what we do is we try to ensure as much as possible that we have non-counselable POs, and we also try to, you know, match our procurement along with, you know, along with the shipment schedules as much as possible.
Okay. Other than that, most of our products design based on building for our solution. So, those of our subsystem compatible or optimized for different product line or even different generation of product. So, that will help us in maintaining inventory when the technology generation change.
Okay. Thanks for the details there. As a follow-up, can I ask, you know, now the business is scaling towards 70 billion of annual revenue, right? How should we think about working capital intensity and operating cash conversion in fiscal 27? I think Charles said something about this in his prepared remarks. I didn't fully catch that. But, David, do you expect in fiscal 27 the growth to be self-funded now from operating cash flow, or will the company need incremental external financing to support inventory and receivables beyond the rates that you recently had? Thanks for taking my question.
Sure, Ruflo. So, I think, as I mentioned in my prepared comments, that we do expect the cash conversion cycle to improve. And it's not – the reason for that is when we look at our backlog, we have improved terms, and, you know, which will help us on our cash flow conversion. So, therefore, we expect that this will allow us to carry a greater volume of business. And so, you know, we're going to do everything possible to utilize our balance sheet, which is much stronger. And if you look at our current assets and our current liabilities, it's stronger than most companies that you'll see, you know, out on the market. So, we expect to use the strength of our balance sheet as well as our good customer base, you know, to help us fund our growth.
Yeah, once we keep between $65 billion to $72 billion, I guess our cash flow now is pretty enough. But if there are chance to grow much higher revenue, then we may need more cash flow. For example, $80 billion or beyond $80 billion. So there are some possibilities in that, but we will care when it comes over.
Thank you for the details, sir.
Operator
Your next question comes from the line of George Mauter with Wolf Research. Your line is open. Please go ahead.
Hi, guys. Thanks for the question. Wanted to ask if you're seeing any relief or shift in sort of the AI pricing environment overall. and then sort of just like the balancing revenues and margins commentary. Should we take that to mean that you guys are walking away from some low margin deals right now or how are you sort of managing some of the proof point deals that you guys have done on the next generation racks in the past and then I have a follow-up?
Yeah, that's why we focus between $65 to $72 billion. So, we like to support as many customers as we can, but the business has to be healthy. The margin has to be at the minimum financial kind of demand.
Got it. And then, just to dive a little bit deeper in the traditional server and storage benefits right now, is a lot of that sort of standalone CPU demand? And what is sort of like the attach rate or the sort of synergies with the AI side of the business look like? And then how are margins sort of apples to apples trending in that business? Thanks, guys.
Yeah, very good question. Yes, in last many years, we fully focus on GPU market, AI market. But when companies become bigger, I mean, yes, we circle back to focus on enterprise, CPU-based market as well, including enterprise and kind of industry PC IoT storage-based application. So, we are going to make our balance between growth revenue and net profit become a much more healthy balance.
And I think, by the way, I'll add to that. I think we did a reasonable job year over year because we grew our top line, you know, by 78%, and we grew our bottom line by almost the same amount. So I think that shows, you know, on a year-over-year basis what goals we're after.
Operator
Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Your line is open. Please go ahead.
Yeah, thank you. Congrats on amazing gross margin results. Charles, do you see the value add that Superbicor can add to NVIDIA ecosystem being different from the XPU ecosystem, somewhat implied by discussion around the ARM, AGI, CTU platform?
Yes, there are also a chance we can add our value. For example, our DCPPS solution, they're all for customer, complete the data center build-out support, not just GPU, CPU storage, but all the major components for data center. And other than that, lots of authentic AI application, we have lots of optimization. For example, the Baylor-based solution, the Lubin, HGX-based and also other workstation-based. We see still lots of room. We can differentiate our product from others.
I guess what I'm trying to drive is that NVIDIA is, you know, designing full systems. and where you guys come in is helping end customers customize those full systems. But with the ARM, AGI CPU platform, perhaps there's more full system design help that Supermicro can bring to the table relative to the NVIDIA ecosystem.
Yeah, I mean, yes, for example, beta time to market, right? Whenever the CPU, GPU available, with our architecture, we are able to provide a better time to market and quality, not just design quality, production quality, deployment quality, and service. I kind of work with customers for the whole data center deployment and bring data center to operation and maintain high availability, make sure customers have a minimal failure system. So, we see, indeed, more and more customers appreciate our partnership. So, it's not just buy and go. It's a kind of buy and work together.
Okay, great. And then, David, just real quickly, you mentioned that the backlog has improved terms with respect to cash conversion cycle. Is those improved terms because of customers, or is it because you're seeing a higher percentage of that backlog represent repeat orders, and repeat orders essentially have more favorable terms.
Yeah, so you broke up just a little bit, Nehal, but let me answer what I thought I heard you ask, and that is we really had a combination of two things. You know, we had, you know, new customers come in, but we also had existing customers that we were already selling to, And we tightened – really, we tightened the terms of those contracts. So that's what gives us a little bit of visibility into our cash conversion cycle.
Great. That's super helpful. Thank you, David.
Operator
Your next question comes from the line of Brandon Nispel with KeyBank Capital Markets. Your line is open. Please go ahead.
Hey, guys. Thanks for taking the questions. I wanted to ask about DCBBS. You had previously guided for that to about 20% of gross profit for this year. Could you maybe update us on how that contributed the revenue gross profit for this year and how you're thinking about that for 2027? And I have a follow-up. Thanks.
Yes, thank you for that question. I mean, yes, DCPPS is a big project. I mean, we provide the data center hardware and also software, management software, and deployment, networking, make sure the customer has a high availability and efficient maintenance. So, it is a kind of combination of all. So, for example, management software, I mean, earlier next quarter, we will provide a proactive service package. That's the feature, the service, to maintain customers' maximum availability, make sure all the server-based are working instead of failure and waiting there, for example. So, I mean, we see a very good, very big room to grow, including a kind of a switch. I've been with switch and the whole networking design management tool. So, we see a big room to grow. 20% should be not far away.
Got it. Thanks, Charles. And David, I'm unpacking your comments around gross margins with 75% coming from MIX and 25% coming from tariff and inventory rate downs. It's about $700 million for MIX and $230 million from the other bucket on my math. So within MIX, I'm curious, what did vendor rebates look like this quarter? And then within tariff, did you book a tariff rebate?
Yeah, that's a great question, and let me say we did not book a tariff of rebate, you know, in our numbers. We are actively pursuing refunds, but we did not take benefit for those until we see them. But we do, you know, we're not, I think the rest of the industry is expecting that the tariffs may go back up, maybe not be in the same fashion that they may go back up. So, that's why we still kind of look at this as perhaps a one-time benefit, but, you know, time will tell. So, I think that we had, but as to rebates, your question about rebates, we did have, I think, a little bit higher rebates because we did, But we had a different mix of business, more rebate-laden this quarter, this past quarter.
I appreciate the color. And if I could do one more, on the gross margin guidance, I think it's 10.6% for the first quarter. If we were to normalize that for tariffs and inventory write-downs, how do you see that from a year-over-year standpoint? I know from a reported basis it's up, but last year you definitely had, you know, more tariffs in the numbers and definitely more inventory write-downs that hurt those results. So I was wondering if you could sort of help us from a normalized year-over-year perspective in the first quarter.
Yeah, so my comparisons were more quarter-to-quarter, you know, where we came down, you know, a lot on tariffs and on excess and obsolete inventory. Year over year, I think, you know, the same things are going to hold true, you know, with tariffs, you know, coming down a lot in this quarter with the suspension of the IEEP tariffs. And I think there's no question that we had good, you know, good results on our, you know, this quarter, you know, and so that was a, what we would consider a non-recurring event. Understood.
Appreciate you taking the questions.
Operator
Your final question comes from the line of Victor Chiu with Raymond James. Your line is open. Please go ahead.
Hi, guys. I wanted to circle back on one of Charles' previous comments. Can you just provide some color around how much, you know, of your backlog and end demand are being impacted, you know, by the shift towards the GenPick and inference workloads, you know, from trading workloads? You know, are you observing kind of this inflection, you know, right now, you know, in your results? And, you know, I guess, you know, how does the inflection kind of impact the mix of shipments between CPUs and GPUs, you know, in the mean term and kind of going forward?
Yeah, kind of, it's basically a complicated mix. I would have to say still 70-something percent GPU, maybe high 20 percent CPU. But still, some GPU now is an identical GPU, or kind of an aging GPU. So it's kind of, in terms of profit margin, the age GPU is between traditional GPU and CPU. So it's a complicated combination. But overall, with our DCPPS is growing quickly. So, I believe we should be able to maintain the profit margin we plan for.
I got it. And, you know, I just, are you seeing kind of a shift at all, you know, any changes in this? Or, you know, yeah, I understand mix, you know, that you're kind of alluding to.
But, you know, is this, how is that compare, you know, to, you know, maybe, you know, the euro for you know in terms of kind of the workloads influence in that yeah yeah long-term gpu percentage will continue to grow i believe but again lots of gpu will become uh uh well used in our application uh authentic ai uh enterprise ai um so overall gpu market i believe will be uh not just big but also get into every vertical and now that's what we believe at this moment thank you very much we have reached the end of the Q&A session
Operator
this concludes today's call thank you for attending you may now disconnect
