Semler Scientific Q4 2023 Earnings Call Transcript

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Provided by Quartr
August 8, 2023

There are 9 speakers on the call.

Operator

Thank you for standing by. My name is Anna and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Fiscal 4th Quarter 2023 Results Conference. With us today, Charles Leanne, Founder, President and Chief Executive Officer David Wiggins, CFO and Michael Stager, Vice President of Corporate Development. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. Michael Sigert, you may begin your conference.

Speaker 1

Good afternoon, and thank you for attending Supermicro's Call to discuss financial results for the Q4 and full fiscal year, which ended June 30, 2023. With me today are Charles Liang, Founder, Chairman and Chief Executive And David Wiegand, Chief Financial Officer. By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the Events Presentations tab. We have also published management's scripted commentary on our website.

Speaker 1

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 and other income and expenses, taxes, capital allocation and future business outlook, Including guidance for the Q1 fiscal year 2024 and the full fiscal year 2024. There are a number of risk factors that could cause Super Micro's future results You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10 ks filing for fiscal 2022 and other SEC filings. All these documents are available on the Investor Relations page of Super Micro's website. We assume no obligation to update any forward 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 accompanying presentation or Our press release published earlier today.

Speaker 1

In addition, a reconciliation of GAAP to non GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q and A session for sell side analysts to ask questions. I'll now turn the call over to Charles.

Speaker 2

Thank you, Michael, and good afternoon, everyone. Today, I'm pleased to announce a new record fiscal result of 7,120,000,000 annual revenue, 37% year over year growth rate. We have also achieved our 1st landmark, 2,180,000,000 quarterly, Which is 34% growth year over year and 70% quarter on quarter. We are continuing to See the both top and bottom line results and performing well beyond our previously guided ranges. It's no secret that our strong growth has been driven by the demand For our leading AI platforms in plug and play rack scale, especially for a large language model Optimize NVIDIA HGX based Deltanax solution.

Speaker 2

Our engineering capability Enable us to deliver optimized first to market AI products and solutions to our customers, Distinguishing us from the competition and empowering us to make market share. I'm also proud of our logistic and production team's execution to maintain our Come to market advantage and deliver our total solution to our key partners much sooner than competition. Our investment of R4,000 per month stay order up meditation and production facility in Silicon Valley One of the major factors in delivering high performance AI rack quickly with both Air Cool and Liquid options. Let's go over some key financial highlights. First, we entered fiscal year 2024 with Dracul High back order, many more new design wins And new customers.

Speaker 2

Again, our fiscal year 2023 net revenue totaled 7,120,000,000 up 37% year on year above our midpoint guidance range of 6,700,000,000. Fiscal year 2023 non GAAP earnings per share grew 109% year over year to $11.81 compared to $5.65 a year ago, Exceeding the higher end of our revised guidance range of $10.50 to $11 Fiscal Q4 net revenue totaled $2,180,000,000 up 34% year on year and up 70% Quarter on quarter, above our guidance range of $1,700,000,000 to $1,900,000,000 Fiscal Q4 non GAAP earnings of $3.51 per share grew 31% year over year compared to 2 point $0.62 a year ago and it was well above the high end of our guidance range of $2.21 to 2.71 Demonstrating strong operating leverage and continued customer preference towards our rack scale Total ID Solutions. For 30 years, we have been diligently building our company's strength and foundation As the only USA based large scale AI platform designer and manufacturer, we have been shipping our We need products in volume to our partner for more than a quarter. Couple of months ago, I was honored to have my close friend, NVIDIA CEO, Jason Huang, join me on stage at Computex To highlight our optimized new generation GPU solutions for this AI era, We are deploying Nagios system, but complete the rack scale total solution to large generative AI innovators.

Speaker 2

Supporting HgX, H100 Delta Next, H100 PCIe GPUs And just Alans at L4TS GPUs, our DeltaNEXT, RedstoneNEXT and AGPUOVX systems I've become the benchmark for our excellence for our industry. We are also getting good traction On Intel Gauti 2 and PVC as well as AMD's Mi 250 Accelerator Solutions. The demand for artificial intelligence in virtual charge is perfectly addressed by our building block server architecture. And due to our building blocks solution, we are based in broadest application optimized GPU solution on the market. We plan to extend this leadership with the upcoming MGX platforms that we announced at Computex, Bringing modular flexibility on acceleration with X86, Grace, C2 and Grace Harper, CG1, C4 Chip.

Speaker 2

The MGX platform It's Strayer the vision of AI computing between NVIDIA and Sivomatico designed to be open, flexible And you took root for multiple generation of GPUs, CPUs and DPUs. We already have many customers engaged with these new MGX platforms as we speak And soon, there will be volume production. With nearly half of our revenue this quarter Based on AI related designs, I expect this AI growth momentum to continue expanding our team Across all customer types, 4 major AI innovators, a super large CSP, Tier 1 datacenters, Tier 2 Cloud and Toda General Enterprise Market. As the performance of GPU, CPU, DPU and memory technology increase, Enhanced storage performance is also necessary to feed the massive data set to the application Without becoming an bottleneck, this slows the entire system down. Supermicro's new PCIe Gen 5 based E1S and E3S, petascale all flash storage server, all for industry leading Storage performance and capacity.

Speaker 2

Together with our UDAR2 NVMe, Tableau did scale out and traditional storage platforms. We are fulfilling customers' AI compute and Storage needs with 1 stop total solution shopping experience With the base optimization in performance, time to online and cost, With accelerated computing and storage, the power consumption and thermal challenge of this new technology We've reached dramatically 40 kwah or even 100 kwah direct solution demand is Rapidly expanding and require for compute intensive, data center, CSP and other verticals. Having high power efficiency, 3 AR and deep cooling expertise have become one of our key Differentiator of success. We have made major investments across a variety of technologies To drive adoption of direct NUC cooling in data center to address the thermal challenges. In addition to increasing computing density and reducing TCO, maybe couldn't reduce the environmental impact Of Data Center German SQL, aligning with our green computing mission.

Speaker 2

Similarly, The Dixie Emotion solution is making good progress and we will be happy to provide their option to interest partners. The reality is that telecenter infrastructure is getting more complex, especially with the On preceding demand of AI, the design complexity and integration skill Along with the requirement to deploy in a timely fashion, heavy burden to many end customers. Supermicro's total IT solution approach saves them from the complication of design, validation, Solution and integration and also streamline network switching, firmware and software management In data center scale, customers' peace of mind is top of by the value of our 20 fourseven global service tiers. Given the current infrastructure demand, we have been continuing to evaluate our footprint Beyond our recent Alarms Malaysia expansion, we had recently added another new building close to our Silicon Valley headquarter And I aim to further increase our current R4,000 rack per month capacity in this fiscal year to further support the demand From key domestic partners, we are also planning to build another manufacturer campus in North America. At this moment, our U.

Speaker 2

S. Headquarter and Taiwan facility can support at least $15,000,000,000 in revenue, We are the new Malaysia facility. We are further increase our total revenue capability by serving Large scale product and customer on a reduced cost structure in the coming few quarters, In closing, Shubhoo Mago is in a great position to continue our growth momentum with our leading AI portfolio, Our infrastructure readiness and our ability to deliver product in a timely manner. Due to the current key component supply shortage, we forecast revenue in the range of $1,900,000,000 to $2,200,000,000 We see our fiscal year 2024 revenue between RMB9.5 billion to RMB10.5 billion. We assume to deliver more depending on availability of supply.

Speaker 2

Our role as the leader Of Rexcale Total AI and IT Solutions has just begun. We are ready to deliver optimized AI infrastructure to existing and emerging market Along with our value add software and service, to say that plainly, Our foundation and capacity are fully ready and our demand is growing strongly. With LRAM, large language model and other AI applications are booming. I now expect the $20,000,000,000 annual revenue Before passing the call to David Wiegand, Our Chief Financial Officer, I want to say thank you to our partner, customer,

Speaker 3

Thank you, Charles. Fiscal 4th quarter revenues were $2,180,000,000 up 34% year over year And up 70% quarter over quarter. Q4 revenues exceeded initial guidance range of $1,700,000,000 to $1,900,000,000 and we're at the high end of the recently updated range of $2,150,000,000 to 2,180,000,000 For fiscal 2023, we reported revenues of $7,120,000,000 representing 37% growth over fiscal year 2022 revenues of $5,200,000,000 Next generation CPU And AI platforms continue to drive record levels of design wins and orders. Exiting fiscal year 2023 with a record backlog, We are well positioned for fiscal year 2024 with an outlook for continued revenue growth and profitability. We expect diversified growth Driven by top tier data centers, emerging CSPs, enterprise AI build outs, CPU upgrades and Edge IoT And Telkomarkets.

Speaker 3

We are also targeting new opportunities in adjacent markets such as storage, Switches, software and services. We note that our shipments against our record backlog may continue to be constrained My supply chain bottlenecks were key new components for our advanced AI server platforms. Q4 results were driven by our high growth AI GPU and rack scale solutions, which represented 52% of our total revenues. We had 2 10% customers for Q4 And did not have any 10% customers for fiscal year 2023. During Q4, we recorded 976,000,000 In the enterprise and channel vertical, representing 45% of revenues versus 50% last quarter.

Speaker 3

This was up 19% year over year and up 51% quarter over quarter as we ramped several key enterprise programs. The OEM appliance and large data center vertical achieved $1,170,000,000 in revenues, representing 53% of Q4 revenues Versus 47% last quarter, up 59% year over year and up 94% quarter over quarter as we gained momentum Our emerging 5 gs, Telco, Edge and IoT segment achieved $43,000,000 in revenues, representing 2% of Q4 revenues versus 3% Last quarter. For the fiscal year 2023, organic enterprise channel And AIML revenues grew 10% to represent 48% of total revenues. The OEM appliance and large data center segment grew Grew 102% and represented 49% of total revenues. The emerging 5 gs TelcoEdge IoT segment Decreased 36% and represented 3% of total revenues.

Speaker 3

The mix of complete systems and rack Scale Total IT Solutions has increased over the last 2 years. Server and storage systems comprised 93% of Q4 revenue And subsystems and accessories represent 7%. ASPs continue to increase On a quarter over quarter and year over year basis, driven by the value and complexity of our Rack Scale Total IT solutions. By geography, U. S.

Speaker 3

Represented 76% of Q4 revenues, Asia 11%, Europe 10% And rest of world 3%. On a year over year basis, U. S. Revenues increased 55%, Asia decreased 17% and Europe increased 1%. Rest of the world increased 12%.

Speaker 3

On a quarter over quarter basis, U. S. Revenues increased 112%, Asia increased 10%, Europe decreased 1% and the rest of the world increased 11%. The Q4 non GAAP gross margin was 17.1 Down quarter over quarter from 17.7% in Q3 as we focused on winning strategic new designs and market share. For fiscal year 2023, the non GAAP gross margin of 18.1 versus 15.4 For fiscal year 2022 was driven by an increased rack scale production and customer mix And higher manufacturing efficiency.

Speaker 3

Turning to operating expenses, Q4 OpEx On a GAAP basis increased by 14% quarter over quarter and 19% year over year to $145,000,000 driven by headcount and related expenses. On a non GAAP basis, operating expenses increased 14% quarter over quarter And 17% year over year to $133,000,000 Our non GAAP operating margin increased significantly to 11% for Q4 Versus 8.7% last quarter due to operating leverage driven by higher revenues that outpaced increases in operating expenses. For fiscal year 2023, we achieved a non GAAP operating margin of 11.4% versus 7.2% In fiscal year 2023, due to higher gross margins and operating leverage from higher revenues and expense controls. Other income and expense for Q4 was an expense of approximately $1,500,000 consisting of $3,500,000 in interest expense, Offset primarily by a net foreign exchange gain of $2,000,000 Our interest expense Increased sequentially as we utilized our short term credit lines or working capital requirements along with higher short term interest rates on our borrowings. The tax provision for Q4 was $31,300,000 on a GAAP basis and $36,600,000 on a non GAAP basis.

Speaker 3

The GAAP tax rate for Q4 was 13.9% and the non GAAP tax rate was 15.4%. The GAAP tax rate was 14.7 percent for fiscal year 2023 versus 15.7% in fiscal year 2022 And the non GAAP tax rate was 15.9% versus 17.7% in fiscal year 'twenty Fiscal year 2022. We delivered strong Q4 non GAAP diluted earnings per share of $3.51 Which exceeded the high end of the original guidance range of $2.21 to $2.71 And the recently updated range of $3.35 to $3.45 The increase in Q4 EPS was due to a combination of higher revenues and operating leverage. For the full fiscal year 2023, We reported non GAAP diluted EPS of $11.81 Up 109% year over year versus fiscal 2022 non GAAP diluted EPS of 5.65 And higher than the fiscal year 2023 guidance of $10.50 to $11 Cash flow Used in operations for Q4 was $9,000,000 compared to cash flow generated by operations of $198,000,000 in Q3 Due to higher accounts receivable offset by lower inventory and higher accounts payable from back end loaded shipments in the quarter

Speaker 2

Due to supply

Speaker 3

constraints, CapEx was $8,000,000 for Q4 resulting in negative free cash flow of 17,000,000 versus positive free cash flow of $190,000,000 last quarter. For fiscal year 'twenty three, we had cash flow from operations of 6 $164,000,000 CapEx of $37,000,000 resulting in free cash flow of 627,000,000 We have $50,000,000 remaining under the authorized share buyback program, which expires on January 31, 2024. The closing balance sheet cash position was $440,000,000 while bank debt was $290,000,000 Resulting in a net cash position of $150,000,000 down from a net cash position of $176,000,000 last quarter As we utilize our bank lines of credit to support higher revenues and accounts receivable and we ramped up production of new AI GPU design wins. Turning to the balance sheet and working capital metrics compared to last quarter, the Q4 cash conversion cycle improved to 77 days Versus 126 days in Q3. Days of inventory was 75, representing a decrease of 51 days versus the prior quarter Of 126 days.

Speaker 3

Days sales outstanding was down 13 days quarter over quarter to 38 days, While days payable outstanding came down by 15 days to 36 days, faster inventory turns Model covering a wide range of AI, core computing, storage, 5 gs, telco edge and IoT applications. Design wins span across enterprise channel, large data center and emerging AI, CSP, telco and OEM customers. We are carefully observing the global macroeconomic situation and continuing supply chain constraints, especially for leading AI platforms. For the Q1 of fiscal 2024 ending September 30, 2023, we expect net sales in the range of 1,900,000,000 To $2,200,000,000 GAAP diluted net income per share of $2.02 to $2.80 And non GAAP diluted net income per share of $2.75 to $3.50 We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately $185,000,000 and include $48,000,000 And stock based compensation and other expenses that are not included in non GAAP operating expenses.

Speaker 3

GAAP and non GAAP operating expenses are expected to increase due to continued investments in R and D and higher personnel costs, Adding to our great engineering and sales teams. The outlook for Q1 of fiscal year 2024 fully diluted GAAP EPS Includes approximately $44,000,000 in expected stock based compensation and other expenses, net of tax effects of $9,000,000 which are excluded from non GAAP diluted net income per common share. We expect other income and expense including interest expense To be a net expense of approximately $1,500,000 The company's projections for GAAP and non GAAP diluted net income per common share Assume a GAAP tax rate of 14.7 percent, a non GAAP tax rate of 15.4% And a fully diluted share count of 56,000,000 for GAAP and 57,000,000 shares for non GAAP. We expect CapEx for the fiscal Q1 of 2020 to 2024 to be in the range of $10,000,000 to $12,000,000 For the fiscal year 2024, Which ends June 30, 2024, we are giving guidance sorry, The 1st fiscal year 2024, which ends June 30, 2024, we are giving guidance Revenues in the range of $9,500,000,000 to $10,500,000,000 Okay, Michael, we're now ready for Q and A.

Speaker 4

Operator?

Operator

In order for you to queue up in the Q and A panel, please simply press star and number 1 on your telephone keypad. Now we have the first question comes from the line of Neil Klotzky from Northland Capital Markets. Sir, your line is open.

Speaker 4

Thank you and congratulations on an amazing quarter and amazing fiscal year 2024 revenue guidance of 9 point And I have a brilliant, definitely want to dig into that. First off, Charles, I think you said you had 50% revenue exposure at AI for the June quarter. That's incredible. It makes a very strong statement that System Micro is indeed the leader in AI systems. What Do you think is a sustainable differentiation that you guys are wielding with Rackscale AI Systems that's driving that Incredibly fast increase in revenue exposure AI system.

Speaker 2

Yes. Thank you for the question. Yes, AI has been our major focus since a few years ago and we work with AI Chip company kind of like NVIDIA very closely and we could develop lots of platform Including MGX, the Cummins MGX as you know to support C2 and CG1. So our AI solution with rack scale or cloud scale, cluster scale solution that make Our customers deployment much easier and fully have their solution for energy cost saving So I believe our AI product line business will continue to grow In near future, maybe continue to be more than 50% of our revenue.

Operator

Next question comes from the line of Midee Hosni from Susquehanna International Group. Your line is open.

Speaker 5

Yes, thanks for taking my question. And Charles, I think it would be very helpful if you could $10,000,000,000 of revenue and perhaps any kind of color on ASP increase that would capture your increased content would give us an insight unless you have other ways of Explaining to get to 10 Bentley.

Speaker 2

We continue to gain lots of new customer. All partners continue to Like our solution and we continue to gain new customer with our rack scale, cloud scale Total Solution including air cool and liquid cool, right. So we see a very strong demand And growing very fast back order. So $10,000,000,000 should be Kind of a shorter target for sure.

Speaker 5

The question, your competitors also argue for Innovative Cooling and they also argue for share gain. Is there something with your Cooling technology that is better offers better cost performance compared to some of the immersion cooling And your competitors are marketing or talked about?

Speaker 2

Yes, indeed our engineering team is Strong and dedicated. Everyone can design system, our system simply better than others, Not just better in quality performance, but also earlier time to market And Tadell, which is service, software, system management, so it's a total solution and service. So we feel pretty confident that we will continue to get much share.

Speaker 5

Okay. Maybe move on. Because But they are becoming more than 50% of your revenue. How is your pipeline as you look into Second half of calendar year. Do you already have a pipeline that gives you confidence you're going to hit that 50% plus AI as a mix of revenue or you still have to go and qualify and win the business to hit that target?

Speaker 2

Indeed, the pipeline has been very strong and at this moment the visibility is very clear. So we are very confident, Especially another game of plasma too.

Operator

Your next question comes from the line of John from Tanwanteng. Your line is open.

Speaker 6

Hi, good afternoon. Thank for taking my questions and congrats on a really strong quarter and outlook again. My first one is I just want to dig into your confidence for the outlook. Can you just in various parts maybe talk about your confidence in supply chain being able to supply that maybe 40% growth guidance at the midpoint, Maybe talk about your ability to get allocations from key suppliers. And then within your order book and backlog, what is your assurance How can you identify if there's double or triple ordering?

Speaker 6

And how do you protect yourself against that if they do exist?

Speaker 2

Yes, it's a complicated question. We have a very good product, many product lines For Delta Max, for Redstone Max, for Grace, for Grace Harper and other solutions. So including LFO TS. So the solution is really strong and Supply chain, we work with our vendor very closely every day. And so hopefully the situation will be Consistently improve, but it's not 100% control by ourselves.

Speaker 2

So although we have a good partnership With vendor, with customer, so we work together very closely. And situation will be continue to improve, I believe.

Speaker 6

And on the order side?

Operator

Your next question Are we ready for the next question?

Speaker 2

John, did you have a follow-up? On order side? Yes, indeed, the order side, I mean, the back order have been continue growing strongly. Every month, I see

Speaker 3

Also John, we have a lot of And C and R orders as well. That protects against double and triple booking.

Operator

Okay. Your next question comes from line of Ananda Arwa from Loop Capital, your line is open.

Speaker 7

Yes, good afternoon guys and thanks for taking the question. Yes, congrats on the strong results and And the ongoing momentum, I have a couple if I could. Charles, you talked in the prepared remarks about The unprecedented demand you're seeing and you guys have talked about actually adding new customers including top Tier data center customers, I think you mentioned. And some of these GenAI server forecasts For 2024 calendar are really, really strong and you're also talking about gaining share, etcetera, etcetera. So I guess the first question is, what's the opportunity you see To maybe even do achieve stronger than the fiscal 2024 guidance, I guess what would be the puts and takes there?

Speaker 7

And if you were to be able to exceed the 2024 guidance, what would be some of the things you think would need to occur? And then I have a quick follow-up. Thanks.

Speaker 2

Yes, thank you. Very good question. Again, we continue to gain Generative AI Innovator and we have a very good partnership. We started to ship them some small volume And for sure they need 10 times, 20 times more system and we just cannot ship at this moment because of supply chain. And at the same time, we also continue to engage with large CSP and large data center.

Speaker 2

So we Continue to gain more customer from, I would rather say, all different vertical. So, yes, I had to work out with supply chain, the 3 party relationship, Our supplier, our customer and our sales and that have been our major focus now. Although we continue to improve our software total data center solution including DRC, direct liquid cooling and liquid immersive solution. So, I mean, we are on the right track. Yes, expecting supply chain can improve so that we can grow our revenue.

Speaker 7

That's really helpful. And so, Charles, just to make sure that I understood that accurately, is that to say If the supply chain if you can get more from the supply chain, well actually it's to say this way, You have order visibility such that if you can procure more, You would have the ability to share gains exceed the fiscal 2024 range that you provided. Is it really a supply chain I guess is what I'm asking. Did I hear that accurately?

Speaker 2

Yes, absolutely. I mean, we continue to prove to our customer and our vendor Hey, we have a basic solution. So work with us. That's where we win for everyone.

Speaker 7

I got it. And then let me just ask a quick follow-up to that one. Is there any way you guys could provide any context for us Around, I guess, how constrained you are, like what might the demand outlook Sort of look like if you were not constrained. So not like a guidance, right? Obviously, you gave your guidance, but just context Correct.

Speaker 7

And really get a sense of what the structural positioning of the company is, if there were not constraints.

Speaker 2

Yes, I can. We are the base of the product and we have a very good partner on customer And we push our vendor and we know our vendor doing their best to support us At the same time as well. So we just have to continue work together.

Speaker 7

All right, Charles. I have one more quick one. I'll move away from demand. I appreciate it. Sounds like the gross margin guidance for the September quarter is a pretty solid, most attractive guide.

Speaker 7

For fiscal 'twenty four, should we assume that same 17% kind of gross margin range or what's the right way to think about that? And that's it for me. Thanks.

Speaker 3

Sure, Ananda. This is David. So we're targeting to hold our margins And that's all the guidance that we'll give right now.

Operator

Your next question comes from the line of Adam Ratz from Wells Fargo. Your line is open.

Speaker 8

Yes. Thanks for taking the questions. And also congrats on the results tonight. So first of all, I just want to clarify, I want to make sure Was it 50% or 52% of the revenue that was from your AI and Rack Scale Solutions this last quarter?

Speaker 3

Yes, Adam. Charles in his script said approximately 50 Percent and I clarified 52%.

Speaker 8

Okay. And so I guess the question underneath of that is that, one of the questions I get asked a lot The spend around AI being so strong and it sounds like obviously you're carrying a pretty good backlog Looking out over the next several quarters given the supply dynamics, but is if I take that number and I say the non AI business, How has that trended or basically are you reallocating capacity away from more of the non or traditional compute side The satisfied demand on the AI side or have you seen spending slowdown outside of these AI investments that you're clearly benefiting from?

Speaker 2

Yes. Now, on AI server storage IoT Tierc or whatever, We keep about a little bit flat. Understand the industry a little bit declining. We although not declining about flat And we try to grow as well and that's why we are growing in many direction kind of Manufacturing kind of like Taiwan, Malaysia and we may have another North America campus. So that's all to increase our capacity so that we can grow traditional data center business as well,

Speaker 3

So just to be clear,

Speaker 8

I mean, so you're limited on your supply on the traditional compute side because of the AI demand that you're seeing. Is that fair?

Speaker 2

Not exactly, impacted, but not exactly. Indeed, as you know, the traditional Server, traditional data center business, a little bit flat from the demand side. So we are facing to Similar experience as well, but not declining to us.

Speaker 8

Yes. Okay. And then the final question for me is Thinking about the AI opportunity and I think you alluded to this a little bit in your prepared comments. You mentioned Positioning

Speaker 4

around, I

Speaker 8

think it was the Intel Gavi chip and then also I think another vendor coming to market the Mi 300 from AMD. How do you see that playing out for your opportunity? Does it help satisfy demand? Are you seeing indicators that This AI opportunity is going to be much more diversified here as we move into 2024 versus what you've seen on the NVIDIA side at this point. Just curious how you're seeing kind of The competitive landscape or maybe opportunities that expand for you guys with those newer other solutions coming to market?

Speaker 2

Yes, NVIDIA solution benefited the leader and people really are waiting for NVIDIA more supply. And other solution for Mintel from AMD, because our building block solution, we have a solution ready for all of them. So that's the advantage we have. So we are just waiting for their solution to be available in production.

Speaker 8

Thank you very much guys.

Speaker 2

Thank you very much. Thank you.

Operator

Your next question comes from the line of John from Tanwanteng, your line is open.

Speaker 6

Hi, thanks for the follow-up. Dave, I was wondering if you could talk about Working capital needs in this sort of environment. Can you generate positive cash flow going forward or are you going to be using cash as you try to fulfill this outside demand?

Speaker 3

Yes, John, we see the business generating good cash flows as it has historically. And we think that the especially in this constrained supply market Where we could deliver more if we had more supply. But, so really The constrained supply ends up moderating the working capital. And so We grew our business last quarter quite a bit and grew our AR. So that utilized a lot of working capital, but we have no concerns Working capital.

Speaker 6

Okay, great. And then could

Speaker 3

you guys give a little

Speaker 6

bit more detail on the capacity expansion and then when those various

Speaker 3

Come online in around 12 to 15 months. And that's going to that will eventually double our capacity. And we also have additional capacity coming online in our Building 23 here in our Silicon Valley campus. And we've also added, as Charles mentioned, another site in San Jose With intentions to add another site in the Americas.

Speaker 6

Got it. And then last one for me, maybe A more detailed question. What percentage of your AI sales right now are liquid cooling base and do you expect that percentage to increase as you go forward?

Speaker 2

This is very new question. So we have a very good DRC, DirectTouch Liquidity solution ready to go now and it's all dependent on customer demand. And at the same time, The DIGS Emotion solution also getting ready. So we have a Ola three solution and depends on customers' demand. At this moment for sure, Air Cool still the majority as you know.

Speaker 6

Okay, great. Thanks, Charles.

Speaker 2

Okay, great. Thanks, Charles. Thank you.

Operator

Your next question comes from the line of Neil Kashmi from Northland Capital Markets. Your line is open.

Speaker 4

Yes. Thank you for the follow-up question. So NVIDIA effectively guided their July quarter data center revenue of 2x Q2Q. What does that mean for Supermicro in terms of GPU systems, especially what I'm trying to drive at is that, is there a lag Between when NVIDIA gets recognized revenue and when the rest of the server OEMs gets recognized revenue?

Speaker 2

We believe their capacity are growing and that's why we talk to them Every day ask for more. So hopefully we can gather more support from them and hopefully their capacity It grows mostly quickly. So that's all I can say now.

Speaker 6

Okay.

Speaker 4

Do you have a guess on what is your I related market share during the June quarter and whether or not that was up Q2?

Speaker 3

We don't have a we're not going to offer a market share So the June quarter, you can make some assumptions by looking at the results Of others, but we have we sell different GPUs, as Charles mentioned. So There is a direct correlation.

Speaker 2

Yes. Basically, we have a strong order, back order And we still have a not so capacity. We are waiting for more AI chip. That's our situation.

Speaker 4

Yes, understood. And how should we think about distributing the remaining $8,000,000,000 across the final three quarters here?

Speaker 3

We're not going to announce quarter by quarter our guidance. But we're expecting this to be a robust year And as tempered by the natural supply constraints Because of the popularity of these new platforms. Yes.

Speaker 2

Basically NVIDIA, we have more capacity for sure And we're really happy to wait over that. And besides, other than DeltaNEXT, our Redstone NEXT is completely ready And our CG-one solution is pretty much ready as well. So we believe we can ship much more And that's the situation. So in next 4 quarters, I believe we will continue to grow quarter after quarter.

Speaker 4

Thank you very much.

Speaker 2

And if the supply is more If the supply condition beta, I believe we can surpass a 10,500,000,000 for sure easily.

Operator

Thank you everyone for joining. We have no more time for questions at this time. And this will conclude today's conference call. You may now disconnect.

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Earnings Conference Call
Semler Scientific Q4 2023
00:00 / 00:00
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