Just when you think the controversy around Supermicro has cleared, the company offers a fiscal year guidance of $33 billion that beats consensus by 10.8% at $29.8 billion, and yet a statement in the February call has been misconstrued to lead to what the market is calling a significant miss.
The comment in the February call was the following: “With that, I am confident we will finish this fiscal year strongly with revenue in the range of $23.5 billion to $25 billion and I believe we have potential to reach $40 billion for fiscal year 2026.”
Therefore, instead of going off analyst consensus, there are reports that Supermicro missed based off that comment about six months ago. This will mark the first time in my memory that a comment two quarters prior is how the market is measuring current fiscal year guide instead of going by analyst consensus.
In addition, a report came out after hours that Supermicro servers may have been smuggled into China through Singapore and Japan. Notably, Dell serversand others have been implicated in the past as it goes without saying that if Nvidia GPUs were known to be smuggled, then servers from Nvidia’s well-known suppliers were smuggled.
Those items are less of a concern, whereas margins and cash remain the predominant concern for Supermicro. However, I suspect this time next year the troubles SMCI faces will be a distant memory as even the way the company is raising cash hints toward an underlying strength the current price action (and valuation) does not reflect.
Notably, this stock does not offer quality fundamentals, and thus it’s reserved for our Advanced tiers and we will adhere to all technical stops.
Revenue Slightly Misses:
Looking beyond the controversies, what is on deck for this quarter is that Supermicro has slightly missed on key headline numbers.
- Q4 FY2025 was expected to be $6 billion at the midpoint yet came in at $5.8 billion for growth of 8% YoY and 25% QoQ.
- Q1 guide of $6.5B missed consensus of $6.55B
- Q1 guide for $0.46 EPS missed consensus of $0.59 EPS
If we look a bit closer, we see that technically Supermicro is guiding to grow at a larger percentage this year than they did last year at 50% for the current fiscal year compared to 47% last fiscal year.
According to management, the current quarter missed for the following reasons that are now cleared: “Shortfall stem from 2 key factors: a capital constraint that limited our ability to rapidly scale production and specification changes from a major new customer that delay revenue recognition because of new ad of some new ad features. The capital constraints will no longer an issue after we filed the fiscal year '24 10-K and large customer orders are now slated for recognition in September and December quarters. Following close collaboration to align with the customers' update future requirements.”
Segments & Geos: USA % Declines Significantly
- AI platforms represented over 70% of Q4 revenues across both enterprise and cloud service provider markets. This number has not changed on a QoQ basis or YoY basis, rather has been consistently at 70%.
- Enterprise reported $2.1 billion up 7% YoY and up 6% QoQ. Growth was higher on a QoQ basis last quarter up 38% QoQ. For the fiscal year, enterprise grew 38%.
- OEM appliance and large data center segment revenues were $3.7 billion, representing up 2% year-over-year and up 40% quarter-over-quarter. For the fiscal year, OEM and Large DC grew 50% YoY.
Asia saw a large increase YoY at 91% compared to the United States declining 33%. Per the CFO remarks: “By geography, the U.S. represented 38% of Q4 revenues, Asia, 42%; Europe, 15%; and the rest of the world, 5%. On a year-over-year basis, U.S. revenues decreased 33%, Asia increased 91%, Europe increased 66% and Rest of World decreased 3%.”
The United States also decreased on a QoQ basis by 21% compared to APAC increasing 78%, Europe increasing 196% and ROW increasing 53%.
This may reflect orders getting pushed out as the GB200s were absent from the earnings call with a stronger focus on B200s, B300s and GB300s. The decline in the USA revenue is substantial as this geo represented the bulk of SMCI’s revenue at 61% last year compared to 38% this quarter.
Margins are Weak:
- Non-GAAP gross margin of 9.6% was down 10 basis points from last quarter at 9.7% but losing any ground on gross margin for Supermicro is often penalized given how thin the margins are. The margin miss and EPS miss was from “tariff impact” according to the opening remarks.
- This led to a slight EPS miss with $0.41 reported versus consensus of $0.44 EPS.
- Gross margin is expected to be similar to current quarter of 9.7%. According to the CEO, their long-term gross margin is goal is 15%.
SMCI is an outlier for our portfolio as we rarely allow such thin margins to take up allocation. The Q4 adjusted operating margin was 5.3% compared to 5% last quarter. The GAAP operating margin was 4% with $228M in operating profits.
Cash and Debt:
This is the most troublesome area for Supermicro as the company must raise cash to fund operations. We closed our position at the highs last year based on this issue, given the valuation was quite high at the time (and now it’s quite low) stating cash is the Achilles heel.
This past quarter, the company completed a convertible bond offering, raising $2.3 billion in gross proceeds. This could dilute the stock by up to 7%. There is a covered call spread to the convertible bond offering, which means effective dilution may be lower than 7% if the stock goes up. On one hand, that’s nice the management team foresees the stock price going up. On the other hand, you can see they are resorting to many measures to raise cash and hedge the impact of the dilution to shareholders, meaning, this could become a vicious cycle to where Supermicro must always raise cash to fund its operations.
To further the creative financing, Supermicro also executed a $1.8M facility which allows SMCI to sell qualified accounts receivable. Again, it is interesting to see a third party has enough faith in Supermicro’s billing structure to take on the nonrecourse sale of accounts receivable, yet serves to illustrate SMCI must continuously raise cash to increase its capacity.
The company has cash of $5.2B with debt of $4.8B, for a net cash position of $412M, up from a net cash position of $44M last quarter.
GB200 NVL72s Absent from Conversation
Analysts asked about the GB200s in as many ways they could think of, and the reply was always the same … that Supermicro is not shipping these rather are preparing to ship the GB300s. Here’s one of many responses like this one:
“Nehal Sushil Chokshi
I have 2 questions. First one is, what is going to be the driver of the projected Q2 uptick to the September quarter revenue? And maybe that can also help us understand why you're guiding to no operating leverage, I believe, effectively the guidance implies about a flat operating margin from the June quarter, September quarter.
David E. Weigand
So the — in terms of the customers, we have a lot of customers that are building out a really good deployments. And so that's what gives us a guide to the first quarter. So we've been shipping AMI 355X and GB300. And so we expect that to ramp in Q1. And that's really what's giving us our guide.”
In the opening remarks, the GB200s were left out: “Notably, we were able to deliver our B200 systems with an industry-leading time to market to our customers. We are confident our B300 and GB300 solutions will deliver a similar, if not even better time to market and time to online advantages for customers, helping them accelerate their AI deployments faster than others.”
Data Center Building Block Solution
Supermicro highlighted their data center building block solution, stating it reduces time to convert data centers for high-density direct liquid cooling from 12-18 months down to 3-6 months. According to the opening remarks: “Several DCBBS components are now shipping or entering production, supporting a growing demand for high-performance, energy-efficient data center infrastructure. equally important, DCBBS meets the growing demand for a comprehensive one-stop shop solution, including software-defined infrastructure, system management, AI workload optimization networking deployment and all different levels of services.”
Management specifically called out Europe and Asia as strong demand for this product: “There are so many contracts, especially in Europe — in Europe, in East, in Asia. So they're all really a great — their AI infrastructure for their country. for their company. And we are working very closely with you there.”
Management stated that they expect DCBBS to represent 20% to 30% of revenue by this time next year:
“Q: But did you say that the data center building block solutions will be around 20% to 30% of total revenue in the September quarter?
Charles Liang
No. I mean I will be maybe next year summer. So it will ramp gradually not immediately.”
Conclusion:
If we read between the lines, Supermicro is cautioning that Nvidia’s highly anticipated Blackwell arrival is either not on time for this quarter or will not going to directly benefit SMCI until Blackwell Ultra ships in Q3. Meanwhile, Astera Labs is giving the green light on PCIe6, which indicates Nvidia’s larger systems are moving somewhere along the supply chain.
We have a setup for Supermicro that we are tracking and a stop we will follow should the stock break that stop. Until then, it’s just another wild ride with Supermicro – one that we feel is worth taking until technicals signal otherwise.
Please join Knox this Thursday at 4:30 p.m. ET to discuss entries, exits and more regarding Supermicro, AMD, Astera Labs and the upcoming Applovin report.
Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in “SMCI” at the time of writing and may own stocks pictured in the charts.
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