Super Micro Computer Inc at Bank of America Global Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : So great. So obviously, artificial intelligence is on everyone's mind. Maybe talk to us about how you see the market for AI servers evolving over the next couple of years? And do you think the market is missing something here?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : All right. So maybe David, if you can talk about your target customer segments, just for the people in the audience who don't know what your focus areas are.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : So you've had great success with the Tier 2 CSPs. But one investor concern that I've heard is, can we expect demand to sustain at that customer set? Maybe give us your thoughts on that.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay. Maybe talk to us about hyperscale. I mean how do you see that segment as a customer set? And is that a target segment for you? And is any of your guidance based on revenue from hyperscale?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : And David, I want to talk about some recent media articles and some chatter about Super Micro losing share to Dell. And really, we hear about CoreWeave and we hear about Tesla. Can you give us your thoughts on that? Do you agree with that? And what is your strategy for gaining share in the market? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 3:40PM, SMCI.OQ - Super Micro Computer Inc at Bank of America Global Technology Conference

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : One of the things that we've heard is Dell has a financing arm. Do you think that gives them a competitive advantage? How do you see that? And how important an issue is funding for Tier 2 CSPs?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David, I want to go back to the target customer segments. At some point, enterprises will start inferencing. Do you think Micro needs to reorganize itself as you target that segment, especially maybe in aftermarket services? Typically, you would think of Dell and HPE as companies who are more into enterprise. So what is your strategy for gaining share in that market? And do you think you need to do any reorganization of the company?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : All right. Yeah, that makes sense. In terms of spending, do you think AI spending on servers is cannibalizing other areas of IT spend, such as on industry standard servers? How do you see that market evolving? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 3:40PM, SMCI.OQ - Super Micro Computer Inc at Bank of America Global Technology Conference

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David, one thing you mentioned just now is that some of the constraints on your growth is availability of components. Let me just talk a little bit about that. Is your growth constrained by how customers are putting in data centers availability of our space and other components? So just talk about the environment there.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : I'll ask one more question on competition. Overall, if I look at this space, the AI server market is becoming really competitive. I mean, there are lots of companies who are making AI servers. And when I look at it, just about everyone has their own flavor of liquid cooling, right? So talk to us about whether you think Super Micro still has a competitive advantage in this space. And what do you think is the competitive advantage for Super Micro even in this competitive market?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : So you just said maybe more than 50% of your revenues are tied to AI. You know Market share data in the AI server space is hard to come by. Do you have an estimate for what your market share is in the AI server market?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Okay. David, maybe I want to move to the topic of margins, because I think recently, that's come up, some of your competitors have reported. You've talked about gross margin staying in the 14% to 17% range. But when we think about new accelerators that are coming out from NVIDIA, AMD, when we think about the GB, the new Blackwell, the GB200 systems, is that reasonable to think that you can maintain gross margin in the 14% to 17% range? And also, when you think about operating margins, you've been able to maintain your overall operating margin in the 10% to 11% range. So is this something that you can maintain? Or do you think because of competition, we should expect margins to erode over time? So just talk to us about your general thoughts on margins, gross and --

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Just keeping on margins, I think the guidance for fiscal 4Q implies gross margins less than that 14% to 17% range. So what's happening in the near term in the June quarter? And how quickly can margins get back into the range? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 3:40PM, SMCI.OQ - Super Micro Computer Inc at Bank of America Global Technology Conference

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David, another investor concern that we've heard is that was at least Super Micro was not one of the reference manufacturing partners for the NVIDIA GB200 NVL72 reference rack. So a couple of questions on that. First, now that NVIDIA has a reference design for racks, do you think that more people will just go to NVIDIA and buy the racks? I mean, what value add can Super Micro provide? Does this -- and maybe related to that is, does this suggest anything about the evolving relationship with NVIDIA? How strong the relationship do you still have with NVIDIA? And so why don't you answer those for now, and I'll ask you some more.

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David, another concern we've heard from clients is you have a lot of backlog, but do you have the capacity to actually get the revenues to actually do the manufacturing? And talk to us, how much revenue can your existing footprint support? And how do you see that capacity growing over the next couple of years? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 04, 2024 / 3:40PM, SMCI.OQ - Super Micro Computer Inc at Bank of America Global Technology Conference

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Speaking in Malaysia, I mean, is it that -- will it be dilutive to margins initially because I think you're building components and not full racks in Malaysia? And how do you see that impact evolving over time?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : Maybe, David, I want to ask you about sovereign AI because this seems to be -- have the potential for large buys. The sovereign entities have a lot of money. So talk to us about how you see Super Micro benefiting from sovereign AI. Are you talking to any sovereign entities? And are there any specific requirements for sovereign AI which makes Super Micro better suited for servicing that?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : I want to come back to margins, specifically on liquid-cooled racks because I think this is something that most data centers will need over time as the GPUs consume a lot of power and heat. So is the margin range still 14% to 17% for liquid cooled systems? And why is that? I mean can you give us some details on what is it that you're making versus what are you going to third-party providers for? And why wouldn't you be able to charge more for a liquid-cooled rack?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David let's talk about working capital. So as to support growth, you need to support a lot of working capital. When do you make the determination or how do you make the determination that you need to raise more capital? And how should investors think about your trade-off between using more debt or using -- doing another equity raise?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : David, I've got lots of questions, but we're almost out of time. So maybe can talk to us about your guidance philosophy? I mean, it seems to me that the stock can have major wild swings with you just putting out a press release announcing the earnings date. So talk to us about what is your philosophy for setting guidance? And how do you think about pre-announcements, either positive or negative?

Question: Ruplu Bhattacharya - BofA Global Research - Analyst : All right. So I think we covered a lot of different topics. David, thank you so much for joining us today. Really appreciate all the information.