Super Micro Computer, Inc. (SMCIP) September 8, 2026 Conference Transcript

He's controlled it.

Welcome, everyone. Day one of Citi's technology conference. My name is Asiya Merchant. Afternoon here of day one. Glad to see everybody. I lead the technology hardware and tech supply chain here at Citi Research. Really happy to have Supermicro's management here with us. Mike Stager is here on the stage here with me. And we have other folks from Supermicro as well in the audience. This presentation here is Fireside, so I do have a bunch of questions. I'm going to allow for a few minutes for investors to ask questions as well. And please do raise your hand so we can bring the mic to you. All right, mic. Pretty good. How's Supermicro doing?

Supermicro's doing great.

Well, you guys had a very, very strong fiscal 26 growth rate, right? I mean, you're talking about, I think you talked about 78% that you reported. You have Q1 revenue that's very, very strong coming in. Talk to me about, you know, just your guidance. How are you thinking about other constraints that are kind of factoring into your guidance here? And just how are you thinking about, you know, the picture that you're sharing for Q1 relative to some of the other constraints that are out there?

Well, interesting. It's good to see you again. I think it was a couple of years ago we were on stage and we had just done a $14.9 billion a year. And now we're talking about doing at the midpoint a $15 billion quarter. So how things have changed or progressed over time. So anyway, obviously demand has been strong in the backdrop and we've reflected that in our guidance. And we talk about customer diversification and expansion of opportunity. There's an expansion of product platforms across the board. So from our perspective, we're trying to fulfill that demand. And part of the cadence on the order book is, you know, having a pretty good idea of where the customers are going to be, at what time, what they need, where they need it. And I think that's pretty helpful from the standpoint of backstopping the order book and the guidance that we have on a go-forward basis.

And, you know, there's a lot of discussion around constraints, right? I mean, everybody's reading the papers. everybody knows there's constraints, whether it's memory, it's CPU, it's power. How is that kind of, you know, why do you feel like this demand is durable and it's not just, you know, they're coming to Supermicro, they're coming maybe to your peers and saying, give us this, and there's a little bit of double ordering perhaps because everybody's worried that they're not going to get it.

Yeah, I think the durability, so one, the guidance across the board, the outlook across the board for the industry has been robust. There's been outsized performance from a lot of players. And the backdrop of this has been the applications. And you see application development is off the charts for new AI workloads. We're application optimized. You see that the solution sets that are being offered to customers from our partners, whether it's NVIDIA, AMD, Intel, ARM, and others, there's multiple different solution sets that they're targeting different verticals. So this expansion of opportunity set at the end user base is significant. Last week you saw VMware enter the fray on the VCF for the AI factory stack. You saw our announcement and engagement with Cisco. So those are enterprise-focused elements where I think the market maybe a year ago was like, is the enterprise going to adopt AI? And there's clear proof points that there's an expansion going across the board. When you look at our, again, our diversification across the customer base is really supportive of this. And the solution element is where we're really focused on. We mentioned that to you in the past, I mean, months or quarters ago, that DCBBS strategy will help the solutioning to the customer. And we're focused on delivering an application-optimized AI solution or a factory, so to speak, and there'll be a mixture of components that are in there, and we're going to mix those up, and those are supportive of margins, and the application stack is expanding. So we're pretty excited, and we're racing ahead to build what customers need.

I think customer diversification has always been one that, you know, focus has always been on focus for a super micro, right? I mean, you started off with these large systems, and by virtue of selling these large systems, They were typically one or two customers that were key drivers of demand. But now you have more than that. I think you have more than nine customers that are generating, you know, a billion dollars in revenue. So the diversification story has played out well for you. And so any one quarter, there could be more customer concentration. How are you thinking about customer concentration today? I mean, is this a path that is still sort of for you guys to still to diversify even more? Or are you thinking about some big customers that are going to be primarily driving a lot of that demand?

So we were pretty clear about the fact that we were focused on expanding our footprint with respect to the enterprise. Sure, there was a few large customers in the past and still will be as we move forward as the initial build out was occurring. You saw a few large customers where everyone wanted to participate with those customers. so there was a little bit of pricing pressure, et cetera, if you want to call it that. But those customers are expanding their use cases and their needs and expanding upon what services they can offer, like AI CPU systems, you know, are going to be offered by some of the larger customers and enhancement of what they're doing at the large customer site. But under the belly of all this, again, the enterprise customers, the neoclouds and even the sovereigns are looking to stand up infrastructure to take advantage of the applications in AI, and we're there to support them, and we have basically almost any diversification and breadth of platform for them. And so this will be very helpful from a standpoint of broadening out that customer base. We're already seeing it, so that's great. But we'll always have, and we always have had some larger customers in the mix. And the argument has been, we're reliant on one large customer or two large customers, and, you know, they'll be displaced by someone else. And we've had a very nice history of gradually expanding with our customers and expanding with our capabilities for them and serving them. So customer focus is a huge thing for us, and we're offering them a whole host of different solutions to accommodate their needs cost-effectively.

And then just a little bit on, you know, lumpiness, right? I mean, you could see that in the last quarter where the revenues came in. a little bit towards the low end of the guide. There's always lumpiness in this segment, right? There's always power constraints or something. So how are you guys managing that? Maybe you could talk a little bit about your visibility, how you think about lumpiness, how it flows through like on your working capital side as well.

Yeah, so from a lumpiness perspective, if you want to call it that, we've had some customer, you know, there's been some challenges at the customer sites or supplier sites or whatever it may be. And we've always captured those revenues downstream. It just might not be in the same time frame as what we had anticipated due to things beyond our control. So one of the good things about this situation is as we move forward and diversification occurs, there's a better visibility of what, where, and how. Again, the other thing is the industry's matured to a certain extent, where there's more folks who understand the dynamics of standing up new services or a new data center and have been preparing for it for quite some time. So we're kind of meeting that in a better fashion where we anticipate or the customer is anticipating their needs are met. And this also kind of backs into the DCBBS strategy because we saw early on customers could order a large amount of racks and they might not have all the componentry that they need to stand those racks up and get the systems working. So if they have made a significant investment, let's say half a billion dollars or a billion dollars, and they're sitting there with idle systems because they can't integrate it, they can't get the networking stack to work, they can't get it to integrate with their storage stack, the power cooling's not in the right area, well, we're productizing those things so that we can drop in factories, essentially AI factories for the customers, so that when they make the investment, It hits the floor. They turn it on. It's pre-validated. This goes to the L12 validation services. They're paying for the use of the systems. They're not worried about trying to stand these systems up. All the hyperscalers can do that because they have all the engineering support in the world, but enterprises and many neoclouds do not have those capabilities. Sovereigns don't have those capabilities. We're doing it for them, and we're pricing for value for those customers. When they get these systems, the more important part is the reliability of those systems is significant. So the uptime that's available to that customer to run their workload, they have more of the available system. So that saves them a significant amount of dollars. I do believe there are some figures out there, like eight racks of NBL 72. Being down for 30 days or not being available for 30 days is $3 million. So you can see customers that have 100 or some customers might have 1,000. or more, that's a huge amount of dollars for a one-month idle kind of situation, right? So customers are now realizing that where they might not have realized it before, and a race to low price was the element. Now the race to have a system that works and services are available is more of a thrust. Delivering the value is what we've been doing, and we've articulated that even a year ago with the DCBBS strategy where people are trying to pick apart what does that mean for margins for you But what it means for the customers, where we're going, we're enabling the customer, gets their systems up, we're working faster. And it's better for our partners because everything's more synchronous. And that lowers the capital burden, too, as well, because the timing of putting all this together, delivery, payment, contractual terms, are far more favorable for us.

And then just within that mix, you have enterprise, you have sovereigns, you have neoclouds. Any further incremental breakdown you could say, like, what percentage of the revenue, or at least of the forecasted revenue, you're thinking those three buckets?

We haven't given that kind of level of detail. The irony here is, you know, we're not even talking about hyperscalers, but hyperscalers are putting workloads in to our customer base. That customer base is expanding, and you're seeing some newer contracts that have come up. You're like, holy cow, you know, where's, you know, I think a year ago, where's the revenue going to come from? And we're seeing it. So you have improved credit quality across the board and, you know, enterprises participating. And so I think the rising tide, so to speak, is lifting all boats. And you see enterprise activities accelerating. Again, we talked about or I discussed some very large enterprise partners, Cisco or VMware. Like, that cadence of adoption is, we're early stages, but it's spreading out. And it's proof points for our order book and probably others in the industry.

Okay. And then you talk a lot about DCBBS. I know that's a topic that has served you well, and we just talked about it in terms of being able to speed to market, you know, the reliability of these systems. any color you can provide what percentage of your revenues is it and what opportunities lie ahead and would it be across are you seeing adoption at an equal pace between the neoclouds, the sovereigns, the enterprises or is one of them further along I don't know if I can I would assume neoclouds is probably further along but the real thrust of this is not just that we're supplying all the componentry that they can do but the integration of the system so that they can actually use the system without any, with an increased enhanced reliability is paramount, right?

So all the different parts, we need to integrate them to actually make them work, firmware, et cetera, software, and our software stack that sits on top of it, where ultimately that software stack will be able to run across different AI factories and integrate those as well. So we're trying to really empower the customer to leverage the infrastructure that we're providing them. Again, this is solution value. And so it's something that we think that we're well ahead of our peers in providing, and we'll continue to forge ahead with new capabilities as those capabilities become, you know, available or known to the market.

Okay. All right. Let me just ask the audience if there's any questions. Please do raise your hand. okay um let's talk a little bit about gross margins um you guys had like stellar margins in q4 uh you talked a little bit about favorable mix here i think then you guided for a little bit of margin volatility in one q um you know aside from the quarterly variance like how should we think about the overall margins of this of the business like where do you think the target could be as we're growing your revenues.

On the gross margins side, we were given one quarter at a time because of the variability in what we're actually doing. But the longer term goal from an internal perspective is to double digit and move that bar higher over time. I think there were some older targets that were floating around. There were 14, 17. We just showed that we could do a 17 and change quarter. there was some some favorable things in that in that mix and as we move forward you know the target is to solution the customer and provide more value to them so that we can capture a better a better margin number so the long-term goal is clearly higher we call that a while back where profitability was important and we've been working on the profitability element and so I think if as we encapsulate more value and more componentry in the systems I think the market looks at AI systems as like a low margin build, and they're going to pin a lot of our success to that. But what we're doing for those customers, there's multiple different variations, and customers are kind of aligning them to the application. And so there's oftentimes where we might be the only vendor supplying that. And if we put some more componentry, whether it's power or cooling, into the mix, that gives us a better value to the customer. And we're getting paid for that whether that's you know 10 12 percent or whatever the number is we're getting paid for that because we're bringing the value to the customer and we're saving a significant amount of dollars in the back end of having the system available and having a more reliable system so we're moving into more into that model we've called that out prior and now we're actually delivering that and and so we're on a pretty good path here and then what about on the you know if As you're trying to scale these DCBBS, there is a lot of services, like you said, attached with it to make sure that these systems are reliable and enterprise or where the end customers can turn it on.

It works. What about on the OPEX side of things? As these are scaling and you're growing them as a mix of your business, do you also have to invest as much in OPEX on the services side?

Currently, we're investing in go-to-market and services. We recognize the fact that we have much to do to expand those capabilities because the customers are demanding it, and we want to support and service our gear. And, of course, it's an enhancement to the business model. The L12 element of validated services is super important, and so we want to support that as well. It's built into the guide and the model, and we've been very efficient from an operating expense perspective. So we're not going to break any eggs in this situation. So could we spend a little bit more if we need to? We probably wouldn't see that in the mix, but we're investing in that. We've been investing in capacity. We've been investing in a lot of different areas and building the business as quickly as possible.

So it's a real-time, run-time environment, large startup, large public startup. and similarly like you know people just I mean I know you just talked about it the go-to market but the enterprise business and the channel like it's pretty diverse especially as you think about then international as well you have to support these customers just help us understand like you know given the model that you guys have typically run where OPEX is still a very very small percentage of your revenues like how are you thinking about penetrating this enterprise base and what additional investments that you talked about are you doing that's going to support the go-to market and the sales and operational side of it?

I think it's important to understand that the basis of the organization is enterprise-focused and always has been. And what we're bringing to the enterprise is something unique and different, at least we feel, and that is AI enablement. And the infrastructure looks a little bit different than the traditional, what you've been covering, the COTS, you know, server networking, you know, body off-the-shelf server. And so from that perspective, we're focused on delivering these solutions. So, again, we have multiple different partners, multiple different platforms within those partners that customers are now understanding that they need. So we are front-faced with the enterprise. It just happens to be that the enterprise segment of the market that we're engaged with are ones that are very technology-foot-forward. And the proof points have been our delivery to them, some of the largest names that you know. The proof points are to some of the neoclouds that are serving the enterprise. It's arguable that neoclouds are enterprise businesses. We have some really strong relationships on the OAM front where our systems are literally installed everywhere. And so our motion on enterprise is to expand it more, We're going to serve more of the customers because we see the need for AI applications expanding and that we can take meaningful share, and we're going to support those customers on the services side. And if there's markets that we're not necessarily present, we'll partner, and we're 100% committed to it. And that's been the engine of growth over the past, let's just say, 10 years for the organization. So putting more performance, more power in a smaller envelope, all the things that a customer needs. And we've argued that enterprises are an aging equipment, and if they want to put AI factories in, there's a likelihood of a significant refresh of the existing CPU-type business, consolidate there, more density, more power, and then have some room for an AI system or an AI factory to be installed next to it. So that looks to be the direction of the market, and we're going to supply that. We already are supplying that.

And then just a little bit about liquid cooling. I know that was something that would get a lot of attention. It still does. As your, you know, as that offering expands just from high-end GPU deployments, maybe to CPU deployments, how should we think about liquid cooling and how, you know, Supermicro is differentiated in that space and what it could do to your world product margins as well.

So on that front, we're providing customers the liquid cooling, the power, if and where they need liquid cooling GPU systems, liquid cooling CPU systems. So our goal is to optimize the liquid cooling element to get the best thermal dynamics for the customer, which we have always led in that category. And so I think that we're going to continue to push forward. I mean, there's a lot of different ways to do liquid cooling, including immersion, and we've done that in the past. And there's call for that in some particular cases in the future. So, you know, the power envelope and doing our power supplies and power banks, et cetera, we're 100% aligned to optimize those for the system, for the factory, so to speak, that we're going to deliver to the customers. So it's part of the dynamic, it's part of the offering, and we'll just continue to improve upon it as we move forward.

Any updated adoption there?

I don't think we do necessarily outside of uptake of the systems that are naturally known to be liquid cooled. Those shipments are...

Okay, for the large labs.

And then there's customers that are retrofitting air-cooled systems, with some cooling element to get more performance out of them, to cool them, to get more power efficient. So we're able to supply that in many cases.

Inventory. I know there's a lot of changes that are constantly happening on the architecture side and CPU to GPU transition. So your inventory did bump up quite a bit. I think you talked about inventory days roughly around 119. So how are you managing this risk? I mean, given that customers are changing, architectures are changing, customers are adopting, you know, deciding what works, what doesn't work for them, relative to the inventory that you have, like, how are you managing that risk of making sure that there isn't any obsolescence risk there?

There's always been a fear of obsolescence risk, but I think it's overstated. We've been able to manage that quite effectively. You know, we have had a few minor inventory charges in the past and a reversal recently. Customers are looking to use whatever they can get their hands on. So there's been an element of, you know, every tier within the market is finding homes for systems and the durability of the systems is pretty extensive. The $12.9 billion in inventory, I think you can kind of match that up to the forward need of the company, of the guide. So we've been pretty good at managing that quite effectively with some minimized risk. So I think there's been no real change there.

Free cash flow generation, I know that takes up quite a bit of investor interest, especially given, you know, you guys are talking about pretty significant demand growth here. You've raised money for that. Just walk us through, like, as you're growing your revenues here and meeting a pretty sizable order outlook that you've shared, how should we think about operating cash flow and working capital intensity as those orders get converted to revenue?

So with the backdrop in the order book, $60 billion, and the diversification of the customer base and the improvement from a standpoint of delivering value to the customer. We have an idea of when, where, how things are needed. The contracts that were, you know, striking with customers, you know, you can imagine that the enterprise-grade customers have, there's less pressure from, you know, there was a lot of startup activity a year or two ago that had a little bit more lean towards terms that were that may not have been favorable for us and then we put a few things through the system there's a couple large orders that came through the system and the focus now is the diversification will move that out there's improved contract terms you know there's customers that are enterprise grade that will pay up front half up front and then half on delivery so those things will be significant improvements from a cash conversion cycle as we forward so the goal is to be self-funded downstream but we've been dealing with this you know excessive growth and so we have had turn capital markets in the past but the focus is smoothing that out we have new sales leadership that's focused on on value and matching terms and and the deliveries and so that there's less pressure on the capital. It's a pretty big goal for the year.

And then the growth outlook that you've shared, about $65 to $70 billion at that level, you feel like internally well-funded?

Yeah, $65 to $72, yes. And so we feel pretty comfortable with what we see at this point in time. And we really called that out.

Okay, all right. Okay. You've had some investigations. It seems like the board's been, you know, the investigation has cleared the management. There were some bad actors there. What specific, you know, if you think about some solutions that you're putting in, some operational stuff that you guys are putting in into this thing, into the organization, what are you guys doing so that investors can feel comfortable that there wouldn't be any of this, you know, stuff going to China where it shouldn't be going? Like, maybe if you can help investors understand what you guys have done.

Well, one, we were pretty committed to not having that happen. And two, again, as you mentioned, the board cleared. There was no involvement at the company level. We have beefed up significantly legal and export control staffing, where that wasn't really a big need a while back. And it's become, as we've become more global, it's become a significant need. So we've had some significant ads in that area. And so we have programs in place and have a, you know, chief compliance officer that we've appointed and legal staff that we've added and enhanced. So from that perspective, we feel pretty good that we'll have no problems as we move forward in the future.

Okay. Any, yeah, have you seen any change from the chip suppliers or other component providers as a result of all these investigations? I mean, I know now they've come to an end, but.

Well, we're more than committed to not having those issues and working with our partners to make sure that that's not an issue for anyone. It's been somewhat of an industry problem that everyone's trying to make sure that that's not occurring.

I'm going to ask a little bit about, you know, just the TAM. The TAM growth is pretty significant. As we're sitting here, on Citi's side, we did raise our own AI CapEx numbers just last week. We've heard AMD sound. We've raised our CPUs numbers. TAM growth pretty significantly. Just help us understand how you're thinking about Supermicro's market share and just even the TAM growth and then Supermicro's market share in that TAM.

So, if you take the $2 to $4 trillion that some of our partners are tossing out there as a total market number, and if we currently have 10% market share now, and we are able to capture in that time frame 10% of the market, that's the $200 billion revenue number for us. I would argue that the solution element that we're bringing to the table and the differentiation kind of significantly improves the opportunity set for us in that TAM because we're 100% aligned to bringing the technology to the customers that is optimized for those particular workloads. But as we move forward, it should be better. And so we're 100% attuned to that. So I think, you know, it's good news for us for the most part.

And then what about funding that kind of growth, right? I mean, we grow from...

Well, we'll worry about that when we cross that bridge. But I think one of the points about, like, how can we get to greater than 10%. So if 10% of the customers are performance-oriented and 10% of the customers are, like, you know, value-oriented, that's 20% of the market. So we kind of have a pretty good – 10% of the customers really chew through systems pretty fast and need to replace them with the next and greatest. And then there's a value-oriented customer that's, like, looking for the most capacity per dollar, so to speak. So that's 20% of the market. So when we talk about TAM and, like, the growth rate and what percent addressable we can get to, you know, that maps out to the possibility of getting 20%. And if you put in the solution element, that puts us beyond that kind of number. So the upside from our perspective on a revenue front is significant. Again, the customer base will be coming to us. It will be enterprise-grade more so. and the cash conversion cycle on an enterprise customer has always been good for us so we'll be able to generate cash and forward and self-fund that.

I think one of the terms you used was backlog. Like we're making sure we're putting some backlog terms to make sure that the cash conversion cycle is satisfactory and, you know, again, sort of meets the need of funding the growth rate here. Just what does that mean, like specifically?

Like what specific improvements are you putting in the backlog there? um specific in our yeah backlog terms yeah um i don't think we've disclosed any of those things so i'm not really on liberty to say but i i think when we contract with our customers yeah we're very clear about you know terms when they need it okay what they need what the solution looks like and so i think having that greater integration with a customer as opposed to a customer coming to us to say I need a server which was you know 2015 yeah I need a couple servers I need a couple boxes a couple pizza boxes different conversation it's a deeper one and so that kind of solidifies the order book and what you would characterize as backlog of what we need to deliver to the customer and what we would need to fund that from an OPEX perspective I think it's in pretty good shape oh we have a couple more minutes here just want to see if everybody in the audience has any questions oh great right i mean what i can say is that we're engaged and we we are shipping those products so and it's early days um all right uh maybe just one more just i you know as you think about these deployments these massive deployments

the tam that you're talking about you know has anything changed when it comes to when you want when your customers want these super microservers and solutions, rather, to be deployed? Is it now closer? Has anything changed there, whether it's not just visibility, but from the time they send you an order to the time they want delivery?

I don't think anything's material changed. I think everyone knows kind of what the parameters are for timing. Obviously, there's an engagement with the partners and the stack to understand how it's able, when we can do it and how we can do it okay there's a lot of synchronization so that goes back to your double ordering thing like i do not think that we're you know this quantum of size is is it's not easy to double order anything there's been an extension like you know people giving you orders out like previously i don't know for six months out eight nine months out now it's like extended beyond that so that order book that you have is actually beyond a year i think the customer engagement would be we expect to do something but whether it's an order or not is a different thing so the order number is a much more firmer commitment of like when it will be as opposed to they're ordering it for a certain period of time but we know that there's intentions beyond what's on our order book okay yeah okay we expect order book to grow right okay fine all right we're on nvidia is like 80 of your business perhaps more amd is very small do you think that will remain the same going forward uh it's uh i hate to say it's customer choice um and those numbers can move around depending on orders uh in any given time um but i think it's important to understand that the solution in that the video is delivering there's many different variations and we have all those for customers and customers are ordering those too as well so um great partner and we look forward to growing with them. We look forward to growing with our other partners, AMD and Intel and ARM. And the demand for the solutions, you can see that the application developments off the charts for AI, you might not see the use cases yet in the enterprise, but if those applications continue to expand, it'll need underlying systems and optimized systems. And And so everyone's – there's so many different solutions now, and we're able to deliver all those. So if there's a key takeaway, we're positioned to be able to deliver AI infrastructure of any nature, of any kind, to the customer base in a total package, in a total factory, and continue to serve a pretty large market.

Taylor, you? Mike, as we are wrapping up, maybe what are investors missing about the Suva Micro story?

Well, I think the last point I made is like, look, there's significant opportunity for us to be the solution provider as we go forward for AI. It's a next generation kind of architecture, and we're well ahead of our competitors in innovation and delivering these solutions. So I think that's a pretty key point.

Great. Thank you very much. Appreciate it.

Thank you. Thanks for having us.