Super Micro Computer Inc. Q3 FY2026 Earnings Call - Gross Margin Surges to 10.1% as DCBBS Strategy Takes Shape

Asia Merchant, Analyst, Citigroup0: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Inc. third quarter 2026 earnings call. With us today are Charles Liang, Founder, President, and Chief Executive Officer, David Weigand, Chief Financial Officer, and Michael Staiger, 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 at that time, simply press star followed by the number 1 on your telephone keypad. If you’d like to withdraw your question, again, press star 1. Thank you. I would now like to turn the conference over to Michael Staiger. Please go ahead.

Michael Staiger, Senior Vice President of Corporate Development, Super Micro Computer Inc.: Hey, good afternoon. Thank you for attending Super Micro’s call to discuss financial results for third quarter fiscal 2026, which ended March 31, 2026. As you know, with me today are Charles Liang, Founder, Chairman, and Chief Executive Officer, David Weigand, 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 it’s 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 and Presentations tab. We’ve also published management’s 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, future business outlook, including guidance for the fourth quarter fiscal year 2026 and the full fiscal year 2026. These statements and other comments are based on management’s current expectations and assumptions and involve material risks and uncertainties that could cause the actual results or even events to materially differ from those anticipated. 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 today, our most recent 10-K filing for fiscal 2025, and other SEC filings. All these documents are available on the IR page of Super Micro’s website.

We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the company presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how management evaluates the company’s operating performance. These non-GAAP measures should not be considered in isolation from, as substitute for, or superior to financial measures prepared in accordance with the U.S. GAAP. 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 fourth quarter fiscal 2026 quiet period begins at the close of business Friday, June 12, 2026. For now, I will turn the call over to Charles.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you, Michael, and thank you all for joining today’s call. We have significant business value growth with our technology leadership and market expansion. However, before I discuss the specifics of the quarter, I want to provide an update on a recent development regarding the indictment of certain individuals formerly associated with the company. I must be clear, Super Micro is not a defendant, nor a target of a grand jury investigation. Super Micro has zero tolerance to any employee who violate the federal law and regulation. I am personally shocked and saddened by these alleged actions, which in no way represented the value or ethic of this company. We took immediate action by terminating our relationship with the defendants and are helping and cooperating fully with the U.S. government.

Additionally, our independent directors have launched a thorough independent investigation with top forensic and legal firms to ensure we continue to maintain the highest standard of integrity. We are not waiting for this process to finish. We are further strengthening our global trade compliance program under expert leadership. Not only is Super Micro fully committed to protecting advanced American technology and following the highest ethical and business standard, but continuing to expand our manufacturing footprint right here in U.S. Again, the alleged actions of a few individuals do not define us. Our focus remains on doing extraordinary work for our customers and partners and leading the industry with transparency and excellence. Let’s talk about our quarter. This was a quarter defined by value and focus for Super Micro.

Despite the industry-wide shortage of key components, including CPU, GPU, and memory, our business continues to grow and expand. Our backup order is now in another record high. We advance and optimize our orders data center infrastructure using our leading direct liquid cooling DLC technology. Our focus remains on delivering the fastest time to online, PTO, in the industry, ensuring our customers can scale their AI factories quickly and most efficiently. Our fiscal Q3 revenue of $10.2 billion was impacted by customer site readiness delay, our business fundamentals are stronger than ever. This is purely a short-term delay. Several customer sites were not yet equipped with the power and networking required for their cloud deployment, and we expect to capture this revenue in the coming quarters.

One of the most significant achievements this quarter was our gross margin recovery, which increased significantly to 10.1% non-GAAP, representing a 58% improvement over the 6.4% non-GAAP reported in the previous quarter. We are committed to achieving a sustainable double-digit gross margin model by increasing our focus on enterprise market and our DCBBS business. Here are some key growth drivers. First, market strength. Business remains very strong in the neocloud, sovereign AI, and agentic AI segments. We have been aggressively fostering the traditional enterprise and storage business for about 1 year, and we start to see strong growth. Growing opportunities. Our Data Center Building Block Solutions, DCBBS, continue to attract old and new customers’ interest and create new profit streams.

By offering a total data center solution that includes complete liquid cooling facility, management software, networking, and service, we are providing much more value to our customers as they commit to our total solutions. Product mix and efficiency. We improve our product mix with some more unique value products in this quarter and thereafter. We also advance our design of manufacturing, DFM, and more automation in our factories to build the products faster with higher yield rate and quality. Supply chain. We successfully manage inventory through a dynamic supply environment and took actions to reduce tariff related cost inflation. These efforts help improve flexibility, protect margin, and support customer delivery timeline. Here is the bigger story. Super Micro is evolving from a U.S.-based server designer and manufacturer into a total data center solution provider.

We expand our business to help customer planning, building, deploying, and servicing data center infrastructure for global enterprise and neocloud provider especially. Our DCBBS business is central to this transformation, providing almost everything a customer needs to build an AI factory, including cooling units, networking, power shelf, battery backup, management software, and many other data center subsystems. Our DCBBS business continues to grow exactly as what we planned, showing a consistent and accelerating contribution to our top line and bottom line quarter-over-quarter. I believe our DCBBS will soon contribute more than 25% of our total profit in the coming few years. As an IT technology leader for more than 30 years, we have consistently turned industry disruption into innovation and new strong opportunities.

One of the key value and drivers of our DCBBS business is our data center end-to-end management software. We see significant demand for the Supermicro data center and cloud software suite, including our SuperCloud Composer, that manage tens of thousands of systems or racks in real time. It provides comprehensive control over system and rack level power usage, cooling status, safety condition, and device utilization, alongside many other critical features. Our management software feature also include advanced CPU and GPU workload or orchestration, which is a critical function for today’s AI data center. The revenue from this new software product line is finally growing at a tremendous pace, increasing from less than $10 million per quarter just a few quarter ago to $34 million last quarter and more than $46 million booked for this quarter.

By bundling subscription-based software and service alongside our hardware, we are strengthening our customer relationship and improving our long-term profitability. We expect DCBBS, including software and service, to continue its rapid growth and to become a major part of our key value very soon. We continue to grow and expand our partnership with many key suppliers, especially with NVIDIA. We are currently shipping many SKU of our latest rack scale systems, including GB300 NVL72, many B300 HGX SKU, B200 NVL4, and our Dolphin Express PX product lines. We are preparing to be among the first to market with the new Vera Rubin systems, including the NVL72 super cluster. We continue to build on strong momentum of our AMD MI350 platform as we prepare for the next generation of AMD CDNA solutions, featuring EPYC, Venice, and MI400 series of products.

We are working closely with Intel and ARM on the development of upcoming MGX 6+ platforms and a new addition to our portfolio, including ARM AI GPU-based solutions. This system will deliver exceptional performance per watt, specifically optimum for our growing demand of agentic AI workloads. By leveraging Supermicro’s system building block solution rack and data center scale building block architecture, we can efficiently support a wide variety of compute platform and optimize them for different business verticals. Moving on to our footprint. We are expanding our global production capacity with new facility to better support AI demand across the world. Our site in Taiwan, Malaysia, and Netherlands are all ramping up aggressively. Domestically, we recently announced our largest U.S. site to date, a new DCBBS campus in Silicon Valley, just 1 mile away from our headquarters.

This bring our total Bay Area footprint to nearly 4 million sq ft, featuring 8 new buildings optimized for innovation, design, production, and validation over our next-generation end-to-end Data Center Building Block Solutions. Within this new campus, we are building multiple large-scale validation and production facilities. Some of them including a clean room specifically to support our new DLC-2 subsystem and next-generation networking solutions, including advanced optical photonics-based device. With these expansions, we are on track to produce more than 6,000 of the world’s most powerful state-of-the-art rackmounts. In closing, Supermicro continue to scale out revenue and scale up value. We have strengthened our governance, delivering a meaningful margin recovery and expanded DCBBS, growing in both volume and value through software, networking, service and more.

Our leadership in DLC technology pair our ability to deliver rack scale total solution at an industry’s fastest time to online will continue to fuel our strong growth, keeping Supermicro at the center of the AI revolution. With that, I remain very bullish about our growth in the AI and data center market. For the first quarter, we target $12 billion, given stable supply conditions. For the full year, we target $40 billion. I will turn this over to David.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Thank you, Charles. Fiscal Q3 FY 2026 revenue was $10.2 billion, up 123% year-over-year and down 19% quarter-over-quarter. As Charles mentioned, the Q3 revenue was impacted by data center and customer readiness together with industry-wide supply chain constraints. We expect to recognize the deferred revenue in the upcoming quarters. Orders and backlog remain strong across our customer base, driven by AI infrastructure demand with AI GPU-related platforms contributing over 80% of revenue. During Q3, the enterprise channel revenue totaled $2.8 billion, representing about 28% of revenue versus 15% in the prior quarter. This was up 46% year-over-year and up 45% quarter-over-quarter. The OEM appliance and large data center segment revenue was $7.4 billion, representing approximately 72% of Q3 revenue versus 85% in the last quarter.

This was up 183% year-over-year and down 31% quarter-over-quarter. For Q3 FY 2026, we had 2 existing customers, each representing more than 10% of revenues. 1 large data center customer at 27% of revenues and 1 enterprise customer at 10% of revenues. By geography, the U.S. represented 69% of Q3 revenue, Asia 13%, Europe 7%, and rest of world 11%. On a year-over-year basis, U.S. revenue increased 154%, Asia grew 1%, Europe grew 146%, and the rest of world increased nearly 500%. On a quarter-over-quarter basis, U.S. revenue decreased 36%, Asia increased 17%, Europe increased 105%, and the rest of the world increased 392%.

The Q3 non-GAAP gross margin was 10.1%, up from 6.4% in Q2. Gross margins were ahead of expectations, driven by our customer and product mix together with lower tariffs, expedite, and inventory reserve charges. The Q3 GAAP operating expenses were $393 million, which was up 34% year-over-year and up 21% quarter-over-quarter. On a non-GAAP basis, operating expenses were $278 million, up 29% year-over-year and up 16% quarter-over-quarter. Both GAAP and non-GAAP operating expenses were up quarter-over-quarter due to higher headcount-related expenses. Non-GAAP operating margin for Q3 was 7.3% compared to 4.5% in Q2.

Other income and expense for Q3 totaled a net expense of $15 million, reflecting $49 million in interest and other income offset by $64 million in interest expense related to convertible notes and the revolving credit facilities. The tax provision for Q3 was $127 million on a GAAP basis and $156 million on a non-GAAP basis, resulting in a GAAP tax rate of 20.8% and a non-GAAP tax rate of 21.1%. The Q3 GAAP diluted earnings per share was $0.72 compared to guidance of at least $0.52, and non-GAAP diluted EPS was $0.84 versus guidance of at least $0.60 due to higher gross margins.

The GAAP fully diluted share count decreased sequentially from 694 million in Q2 to 692 million in Q3, while the non-GAAP share count was largely flat at 709 million in Q3 compared to Q2. Cash flow used in operations for Q3 was $6.6 billion compared to $24 million used in the prior quarter. Operating cash flow was impacted by a reduction of $10 billion in accounts payable and by an increase in inventory of $581 million. These factors were only partially offset by higher net income and a reduction of $2.6 billion in accounts receivable. The Q3 closing inventory was $11.1 billion, up from $10.6 billion in Q2. CapEx for Q3 totaled $80 million, resulting in negative free cash flow of $6.7 billion for the quarter.

At quarter end, our cash position totaled $1.3 billion. Furthermore, $2.7 billion of accounts receivable collections expected in March were received in early April. Our bank and convertible note debt was $8.8 billion, resulting in a net debt position of $7.5 billion, compared to a net debt position of $787 million in the prior quarter. In addition to using our existing U.S. revolving credit facility and non-recourse accounts receivable facility, we set up and commenced usage of a $1.8 billion Taiwan revolving credit facility to further support working capital requirements. Turning to the balance sheet and working capital metrics, the cash conversion cycle increased from 54 days in Q2 to 106 days in Q3.

Days of inventory increased by 43 days to 106 days versus 63 days in the prior quarter. Days sales outstanding increased by 36 days to 85 days. Versus 49 days in Q2, while days payables outstanding increased by 27 days to 85 days versus 58 days in Q2. Turning to the outlook for Q4 fiscal year 2026, which ends June 30th, 2026, we expect net sales in the range of $11 billion-$12.5 billion. We expect GAAP diluted net income per share of $0.53-$0.67 and non-GAAP diluted net income per share of $0.65-$0.79. We expect gross margins to be in the range of 8.2%-8.4% based on expected customer mix.

GAAP operating expenses are expected to be around $433 million, which include approximately $114 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses. The outlook for Q4 of fiscal year 2026 fully diluted GAAP earnings per share includes approximately $95 million in expected stock-based compensation expenses, net of tax effects of $30 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 $36 million.

The company’s projections for Q4 FY 2026 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 19.4%, a non-GAAP tax rate of 20.4%, and a fully diluted share count of 695 million shares for GAAP and 712 million shares for non-GAAP. CapEx for Q4 are expected to be in the range of $30 million-$50 million. For the full FY 2026, we expect net sales to be in the range of $38.9 billion-$40.4 billion. Michael, we’re now ready for Q&A.

Michael Staiger, Senior Vice President of Corporate Development, Super Micro Computer Inc.: Great. Hey, before we begin Q&A, I just like to remind everyone that the purpose of this call is to discuss our third quarter fiscal 2026 financial results. As such, we ask that you focus your questions on the results we announced today. Thank you in advance. Christo, let’s begin.

Asia Merchant, Analyst, Citigroup0: Thank you. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you’d like to withdraw that question, again, press star one. We kindly ask that you limit yourself to 1 question and 1 follow-up. For any additional questions, please re-queue. Your first question comes from Ananda Baruah with Loop Capital. Please go ahead.

Ananda Baruah, Analyst, Loop Capital: Yeah, guys, thanks for taking the question, and congrats on the progress with the gross margin. It’s great to see that. Yeah, a couple if I could. I guess the first one would be just on some of the stuff that’s been sort of press released by you guys throughout the year, sort of during the quarter. I guess specifically, could you give us an update on the indictment? Any more insight to any company employee involvement? Do you think you’ll have to restate earnings? Are you on track to file your 10-Q? Things like that.

I guess part and parcel with that, on the board investigation that you guys announced, if you could talk to the opportunity that that could have to strengthen the organization, you know, sorta, and what those opportunities might be, that would be awesome. I have a quick follow-up. Thanks a lot.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Okay. Thanks, Ananda. The company was surprised and disappointed to learn of the alleged diversion to China of certain of our products. As we’ve previously announced, we’re taking this matter seriously. The alleged conduct would violate our export control policies and procedures, and we’re fully cooperating with the U.S. government to address this situation. In addition, our independent directors have retained an outside law firm, Munger, Tolles & Olson, and a forensic firm, AlixPartners, to conduct an independent investigation into these events. The investigations are ongoing, and we can’t give you any final information at this time. Based on what we know so far, though that could change as the investigation progresses, no one from the company, other than those named in the DOJ indictment, was involved.

As to your second question on restatement of earnings, based on everything we know at this moment and considering the independent investigation is ongoing, we do not believe we will need to restate. Lastly, on the 10-Q, again, the independent investigation’s ongoing, and any filing will be subject to BDO review. Based on what we know at this moment, we are planning to file our 10-Q and are preparing accordingly. I think your last comment about, you know, certainly, we will be taking to heart the results of the independent investigation, and we will look at that as an opportunity to grow and strengthen.

Ananda Baruah, Analyst, Loop Capital: Thanks for that context. I guess my follow-up would be sort of dovetailing off of that. You guys are probably aware, you know, sort of one of the top questions on investors’ minds is, in lieu of these sort of aforementioned dynamics, you know, is there potential for customers to get, you know, a little skittish and move away to other server vendors, you know, gen AI server vendors? To the degree that you have any context that you could offer there, that would be greatly appreciated. That’s it for me. Thanks.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah, thank you for the question. Indeed, we are growing our customer base. Like, last few quarter I share, now we have many more, large customer and middle-sized customer. From our experience, work with customer, communicate with customer, most of customer indeed feel pretty solid, to continue our business and continue to grow together. At this moment, I personally don’t feel a negative feeling.

Ananda Baruah, Analyst, Loop Capital: Got it. Thanks. Thank you for the context. I really appreciate all that. Thanks.

Asia Merchant, Analyst, Citigroup0: Your next question.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you.

Asia Merchant, Analyst, Citigroup0: comes from the line of Samik Chatterjee with J.P. Morgan. Please go ahead.

Asia Merchant, Analyst, Citigroup3: Hi. Thank you for taking my question. This is MP on behalf of Samik Chatterjee. My first one, I just wanted to ask, in your last call, you mentioned DCBBS contributions to profits during first half of about 4%. Can you please update how did it track during the quarter, and how much of a driver was that relative to gross margin improvement that you saw during the quarter? I have a follow-up.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah, very good question. Yeah, our DCBBS indeed continue to gain more and more attraction from our old customer and new customer. It’s a very good value add to our hardware, and also enhancing our relationship with customer. The customer who use our DCBBS continue to grow, and we believe this growth will continue strongly. In next two years, I personally expect at least 20% of our net income will be from DCBBS, including the management software.

Asia Merchant, Analyst, Citigroup3: Okay. Thank you. Then, for my follow-up, I just wanted to ask on capacity additions which you’ve done during the quarter. Can you please help us quantify the revenue capacity that it helped to add for the company? Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah. Also very good question. Again, our capacity now is very huge, but we continue to grow our capacity because we like to make sure ourselves ready for a new generation of data center need for our industry. For example, a much higher density in power, in computing density, and also in photonics technology, and newer generation of switch. We are preparing all of that. Some of the new facility indeed was pair with clean room. To make sure we are able to provide effective base liquid cooling base communication bandwidth, and minimize the power consumption for the new generation data center need. Although our capacity already is big, but we continue to build more capacity.

Asia Merchant, Analyst, Citigroup3: Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Victor Ku with Raymond James. Please go ahead.

Asia Merchant, Analyst, Citigroup2: Hi, guys. Thanks for taking the question. I just wanted to follow up on the first question that was asked. Does the investigation, you know, around the, that may potentially impact, you know, your relationship with NVIDIA, you know, subsequently, you know, your allocation or supply of GPU and other components? Cause I think that’s another really frequent point of concern that we get from clients these days is, you know, how that impacts your relationship and, you know, whether or not that’s the dynamic there has changed at all.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Our relationship with vendor have been very long time, right? Including NVIDIA, AMD, Intel, Broadcom. At this moment, we feel our partnership stay strong. If not stronger, at least as strong as before. We continue to work together for lot of new project. We also share with our vendor, it’s some, a few employees individuals case. I hope they are not impact, basically. David, you want to add something new with that?

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Yeah. I mean, our understanding is that there’s been no change in allocation.

Asia Merchant, Analyst, Citigroup2: Great. That’s very helpful. Just a quick follow-up. The investments that you previously noted that you made in engineering support and services, have those mostly kind of peaked now and, you know, is that contributing to the margin expansion at this point?

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: I’m sorry, could you repeat that?

Asia Merchant, Analyst, Citigroup2: The investments that you’ve noted previously, regarding engineering support services, you know, have those kind of, peaked now at this point or, you know, I guess, you know, where are we, you know, along progress of those investments and, you know, how has that contributed to the margin dynamics going forward?

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Oh, yeah. I mean, a very good question. Indeed, our service business, including data center planning, designing or deploying.

Our service continue to grow. We continue to grow that service team, consulting team, and the revenue continue to grow. Yes, in this segment, the profit is much better than our average hardware for sure.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: I would say there it in no ways has peaked though. I mean, it’s really we’re just gaining traction.

Asia Merchant, Analyst, Citigroup2: Okay. Thank you.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Asia Merchant with Citigroup. Please go ahead.

Asia Merchant, Analyst, Citigroup: Oh, great. Thanks for taking my question here. If I could on just the supply constraints, there’s been a lot of talk about, you know, CPU-based shortages.

Just the guide that you’re providing, are you constrained in any components here? Would there be a number, you know, if these supply issues were resolved, basically were you constrained by supply? Then if I can squeeze in one more as well on the data center. Clearly, you’re seeing traction here. You know, relative to where you were last quarter when it was just starting to kick through, can you help us understand what kind of customers, if you’re seeing any change in the customers, you know, whether it’s from a vertical perspective or a geographic perspective, where you’re seeing traction with these Data Center Building Block Solutions? Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you. In terms of shortage, I believe it’s a global common problem. In last six months, as you know, on a memory, SSD price grow so much, double, triple, more than triple, and some CPU shortage, especially from Intel. We, like other competitor, other system company, yes, we suffer a lot from those shortage. Those shortage may continue for we don’t know how long, like memory and SSD. We have a very good relationship with our vendor, so we continue to work with them and try to gain more long-term support. As to our customer base, yes, as what I share last time, we start to gain more, many more enterprise customer globally and neocloud.

We add more large customer, and we add lots of mid-size and small size customer. We will continue this direction to support more customers.

Asia Merchant, Analyst, Citigroup: Great. Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Catherine Murphy with Goldman Sachs. Please go ahead.

Catherine Murphy, Analyst, Goldman Sachs: Thank you for the question. I was wondering if there was any one-time items that impacted gross margins in the quarter, and anything you could share there specifically to quantify. I think you mentioned tariffs, expedite fees, and then inventory reserve charges. That would be helpful. Then I have a quick follow-up. Thank you.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Sure. With the tariffs, you know, as you know, were reduced by the Supreme Court, and there were some replacement tariffs that came in. We are hopeful that tariffs will be down net, on a net basis, you know, going forward. Whether I look at that as a temporary or ongoing thing is based on optimism. The other thing regarding expedite fees, we had a very large de-deployment in our March quarter, which, in our December quarter, which ended up incurring a lot of expedite charges. Those did not recur in the March quarter. Therefore, we expect that to be incrementally up going forward.

As to the, you know, the supply constraints, you know, as Charles mentioned, it was especially troublesome in the last six months. We, you know, we expect some challenge going forward, but not like we incurred over the last six months.

Catherine Murphy, Analyst, Goldman Sachs: That was very helpful. In terms of just thinking about the revenue miss in the quarter being related to a delivery that was delayed because of customer readiness, and that deal was contemplated in your prior guidance for a margin benefit that was modest quarter-over-quarter. Was that deal that flipped or was otherwise delayed a drag on consolidated gross margins? How should we think about the impact to margins as the revenue from that deal gets recognized in the coming quarters here?

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: We think that some of the large deals that we talked about in the past have been incrementally beneficial to Supermicro because of our reputation, the reputation that it brings for us in deploying large scale installations to some of the best sites in the world. What we notice now is that as Charles mentioned, we’re not only getting more larger engagements, which gives us a diversified customer base, but we’re also getting better margins from those sales. We actually had more diversification this quarter, and we see that going into the current, you know, into the June quarter as well.

We think on net basis, some of the strategic decisions that we made on large installations have been beneficial.

Catherine Murphy, Analyst, Goldman Sachs: Thank you.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Rutlu Bhattacharya with Bank of America. Please go ahead.

Asia Merchant, Analyst, Citigroup1: Hi. Thanks for taking my questions. I’ve got two. The first one is a clarification on revenues and gross margins. David, you mentioned that there was some push out of revenue into future quarters. Can you help us quantify how much of that is coming back in the December quarter versus how much will it be in future quarters? On the margin side, can you help us clarify how you’re thinking about the margin decline from fiscal three quarter, fiscal four quarter? I think you guided 8.3% gross margin on higher $11.8 billion of revenue. What are some of the factors impacting gross margins between fiscal 3Q and 4Q? I have a follow-up.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Sure. Regarding the deferred revenue, it really comes down to, you know, when the customers are ready and when their data centers are ready, Ruple. You know, we’re always optimistic that we can ship right away, but that sometimes depends on the customer readiness. We have to wait and see, you know, if, you know, how much lands in the June quarter and how much lands in the September quarter. As to margins, the our margin mix is determined by, you know, which customers that we sell to and which products we sell, so that’s really the biggest dynamic in affecting our margins.

What we, you know, so therefore what we see is a good upward trend, you know, to that $8.2-$8.4 range. It will depend on which customers ultimately we sell to.

Asia Merchant, Analyst, Citigroup1: Got it. Thanks for the details there. Can I ask a follow-up on working capital? In the past when we’ve had GPU transitions, you’ve had to spend some working capital and time and money as customers qualify these new racks. I’m thinking as NVIDIA releases new GPUs and when the transition happens from the Oberon rack to the new Kyber rack, how are you thinking about your working capital needs, and is there a chance that you might have to come to the capital markets again to raise capital for working capital? Just your thoughts on investments required as new GPUs and new rack designs come out. Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah, very good question. Basically, we are diversify our customer base. Also, improving our total value. Now we have a more and more partnership that we not just build a AI server, then yeah, not just the storage, but we have customer deployment and build a whole data center with DCBBS total solution. Indeed our business will be more diversified and more kind of smooth slides in term of our revenue dynamic and also profit margin change. In term of those concern, we are improving in a very positive direction now, quarter after quarter, basically.

Asia Merchant, Analyst, Citigroup1: Okay. In terms of working capital, David, any thoughts there?

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Yeah. Ruple, what I would say is I always, I always hope that we need to go back to the markets for more money because that means.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: If we grow a lot.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Yeah. That’s.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: If we grow more stably, our capital should be pretty enough. It depends.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: It depends on how fast our growth rate is, Ruple.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah. We, if we try to double again revenue, then we may need some more help in term of capital. If we grow a little bit humble, then I believe we are pretty enough. ’Cause now our business model is improving. Yeah.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Please go ahead.

Nihal Chokshi, Analyst, Northland Capital Markets: Hey, thank you, and congratulations on the strong gross margin. Charles, you mentioned that over the next 2 years, targeting 20% Data Center Building Block Solutions. Was that gross profit or was that revenue?

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Profit.

Nihal Chokshi, Analyst, Northland Capital Markets: Got it. Okay. Very good. I can’t remember, David or Charles, you gave a percentage or a dollar number of DCBBS in the quarter, in the quarter ago period. Could you just repeat that again real quickly?

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: We didn’t give that percentage out, Nihal. Our gross margin did increase on our data center sales. I don’t have the percentage of our gross profit that that represented.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah.

Nihal Chokshi, Analyst, Northland Capital Markets: Okay

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: DCBBS, percentage continue to grow, we may, quickly provide the kind of, percentage change.

Nihal Chokshi, Analyst, Northland Capital Markets: Okay. Thinking about the significant improvement in gross margin, would you look at that more towards DCBBS ramp or more towards a reduction in your 10% customer going from 63% to 27% in that from the December to March quarter?

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah. I guess there are two factors we are continue to improve our gross margins. One is DCBBS solution. With that segment our profit margin be the most of the time are more than 20%. The other segment is enterprise customer focus. We start to grow minimal enterprise customer, and we will continue that direction. That will improve our gross margin and net margin as well.

Nihal Chokshi, Analyst, Northland Capital Markets: Okay. Then included in the guidance is the expectation that this customer that is 27% of revenue in the current quarter will continue to be a 10+% customer?

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yes. We will have a minimal neo cloud, kind of a mid-sized cloud customer and even small size cloud customer. For sure, we will continue support a large cloud customer as well. More neo cloud, small cloud, enterprise cloud. Overall, our margin will continue to improve.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Quinn Bolton with Needham & Company. Please go ahead.

Neil Young, Analyst (on behalf of Quinn Bolton), Needham & Company: Hey, this is Neil Young on for Quinn Bolton. Thank you for letting me ask a question. I was hoping you could touch on maybe what drove the strong quarter-over-quarter increase in enterprise. You know, are you expecting to see healthy growth from enterprise again here in the next quarter and through fiscal year 2027? You know, should we think about the revenue split by channel more closely reflected in 2Q? I have a follow-up. Thank you.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: We don’t provide the detail, the direction is there very strongly. I mean, improve many more enterprise customer, we see lots of customer really like to work with us. At the same time, the DCBBS help us to engage with more and more neocloud and enterprise AI data center customer. Long term, we feel really comfortable in this direction.

Neil Young, Analyst (on behalf of Quinn Bolton), Needham & Company: Okay, thanks. That’s helpful. Just wanted to go back to gross margin one last time. Do you have a think about sort of what level is sustainable, you know, as we do look into fiscal year 2027, as it seems like large AI deployments will most likely, you know, trend towards being a bigger mix of revenue in the coming quarters? Thanks.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah. We believe we’ll continue to grow in a very healthy way because, we are growing customer base, we are growing a product line, we are growing a total solution, including software and service. We are getting to a, much mature, much, high value, partner to the market.

Asia Merchant, Analyst, Citigroup0: Your next question comes from the line of Jonathan Tanwanteng with CJS Securities. Please go ahead.

Jonathan Tanwanteng, Analyst, CJS Securities: Hi. Thank you for taking my questions. Really nice quarter. I was wondering if you could just address a little bit more on the export violation issue and if that might impact your ability to finance growth or the cost to finance growth going forward. I don’t know if you talked about the cost of remediation or addressing the violations, preventing them from happening again, but if you could help disclose that would be helpful as well.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Yeah. John, I think I’ll go back to the, you know, the comments that I made earlier that, you know, that, you know, we, the company was not named in this. Therefore, we, you know, we take these things very seriously. We are conducting our own internal investigation, as you know, and I don’t want to add any more to that.

Jonathan Tanwanteng, Analyst, CJS Securities: Okay.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Also, kind of, based on, what we know so far, although, that could be a change as the investigation process. No one from the company other than those named in the DOJ indictment, was involved. We have a very good confidence with our integrity.

Jonathan Tanwanteng, Analyst, CJS Securities: Perfect. Thank you. I have a follow-up, if I could. You mentioned record or backlog and strong orders. I was wondering what that indicates heading into the back half of this calendar year, just from a growth perspective, number 1, and number 2, if the supply environment can support growth over the first half.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Yeah. Basically, we are a faster growing company, as you know. We can grow much faster if we accept the whole margin business. We try to be a balance in between the growth and the growth margin and net margin. Basically, we are in good shape. I would also say we can control and decide the ratio, the balance.

Jonathan Tanwanteng, Analyst, CJS Securities: Great. Thank you for that.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Thank you.

Asia Merchant, Analyst, Citigroup0: Your final question comes from the line of Mark Newman with Bernstein. Please go ahead.

Mark Newman, Analyst, Bernstein: Thanks for squeezing me in and congrats on the gross margin. On the gross margin and the mix, it sounds like that’s the gross margin rebound is driven partly by some of these what you call expedition charges are reducing. Also sounds like, if I get it right, the enterprise mix is also helping. I wanted to ask just to clarify if that’s right. Within enterprise, is that AI server or is this more traditional server? I have another question also on the revenue as well. Thanks.

Charles Liang, Founder, President, and Chief Executive Officer, Super Micro Computer Inc.: Indeed both. For AI enterprise, I mean, a lot of agentic AI kind of invention application. We see a very strong demand there. For traditional server and storage, even IoT, we also start to gradually support and expand this market. We see a very good progress. We’ll continue overall enterprise business.

Mark Newman, Analyst, Bernstein: Okay, great. On the revenue, it sounds like the reasons for the slightly light revenue was this 63% customer last quarter, now pushed out a little bit, which is, I believe, the 27% customer. As that customer comes back, presumably if that customer rebounds a little bit because of some of that revenue has been pushed out, is that not going to be a bit of a drag down on the margins in the coming quarters? Just one more quick question. You mentioned record backlog. Any clarity on that? I didn’t hear any actual numbers on what the backlog is and how that’s changed over time.

David Weigand, Chief Financial Officer, Super Micro Computer Inc.: Yeah. We don’t give out our backlog number. We just make general comments about the fact that it’s very strong. We are as I mentioned earlier, we’ve diversified our pipeline extensively. We have a, as Charles mentioned, we have a number of large deals from new, you know, neoclouds and cloud service providers, which we are expecting to increase both our, you know, our footprint, our customer diversity, as well as our margins, along with our DCBBS and enterprise expansion.

Mark Newman, Analyst, Bernstein: Okay. Thank you very much.

Asia Merchant, Analyst, Citigroup0: Thank you. Ladies and gentlemen, that does conclude today’s conference call. Thank you all for your participation. You may now disconnect.