Super Micro Computer CFO David Weigand at the Goldman Sachs Communacopia + Tech Conference

wonderful thank you everybody uh welcome to the super micro fireside chat at the Goldman Sachs communic copia and Technology conference I have the privilege of introducing David wean CFO of Super Micro computer prior to joining super micro in 2018 David has worked at H Packard Enterprise silicon Graphics International and rasis electronics America my is my name is Mike G I cover hardware and comp here at the firm uh just in terms of housekeeping rules we have about 35 minutes for today's presentation um first thank you so much for being here David it's really a privilege to have you here um to start things out maybe we can start with a bigger picture question super micro clearly has had a tremendous amount of success with a class of customers which many refer to as tutor cloud or AI csps um could you talk a little bit about what has made super micro a partner of choice for these customers um you know how does Super Micro Drive differentiation relative to some of the OEM server competitors okay thanks uh for having us and and for hosting us so before I begin I wanted to say uh just a few points investors should refer to our cautionary statement our cautionary Safe Harbor statement regarding risk factors and forward-looking comments on our super micro IR website um also recall recall that we recently disclosed we needed additional time to file our 10K uh we also said that based on what we know we don't expect any material changes to our fourth quarter or full year fiscal year 24 results appreciate everyone's understanding that there's nothing more I can say on that topic at this time we we remain focused on delivering the very best products to our customers and executing on our business plans so let me go ahead and answer the your your question and the answer is is that um you know super micros um success has really been founded on a couple things one is that we have we build very efficient systems we build very reli reliable systems um and we also are very uh fast to Market really quick to Market with new technologies and you know liquid cooling is really the latest um you know the latest example of that we're shipping liquid cooled racks at scale and uh this is at a time when the market is moving toward um higher heat you know with gb2 uh with with Mi 325x you have processors and gpus that are consuming more power generating more heat and and we're we're early to Market so it's really um the uh the combination of that along with our our what we call building block Solutions which is really our our ecosystem uh those are the things that have U have have been attractive points for those customers to come to us and you've talked about you know speed to Market as one of the many competitive advantages for super micro could you just discuss why super micro has you know had a history of being first to Market with these new technologies um you know what is it about the engineering or the company's history that supported the these competitive advantages and you worry that some of these advantages may be dampened over time just as competition intensifies right Dell is somebody who who comes top of mind when I think about that sure so first of all we are we're we're vertically integrated which means that we do um you know in San Jose we do design we do uh manufacturing we do testing we do rack assembly all all Under One Roof and that uh that allows us to be really really fast to Market we are we are very engineering focused company and we have a a very um unique way of of our approach to building server Technologies and that uh that unique approach is that we look at them we look at the server as as an as an ecosystem you know kind of similar to maybe like an iPhone we want everything in our in that ecosystem to work well with other components so that way when something new is introduced it already it already fits into all of the other components and so we've uh we've always grown organically that's helped us but now to the second part of your your question Michael um how does that how does that affect us going forward and the answer is is that the uh you know there's a there's a lot of new technologies that are ramping now so you know you've got you have GB gb200 coming out you have gudy 3 you have Mi 325x and so there's there's a we do best in a period when there's technology disruption uh and that's because number one we're very fast to enable those new technologies to come out with a complete platform of of AMD of Nvidia of Intel Solutions um number two they're going to they're going to be high quality Solutions and they're going to be um uh you know they're going to be customized I mean we have customers that we prepare 20 different types of servers for One customer and so that's our that's our specialty great and maybe you can expand on that a little bit um you know super micro clearly has a long history of partnership with all the sil semiconductor companies all the compu suppliers um you know how do you think Super Micro is positioned to perform in the next wave of innovation whether that be Blackwell or Ruben uh or other chips from AMD and Intel and what does that mean for the financial profile if anything yeah we're you know we're always working on the next on the next Technologies so uh we we we really value our relationships with uh with AMD Intel Nvidia broadcom and and and and others and so we U we always want to be one step ahead and that's we believe that we did that again with with liquid cooling it hurt us a little bit on the on the margin side as we as we ramped up on our shipments in the June quarter for our liquid cooled R racks but ultimately it was the right investment because uh because of where the industry is going and so uh that's a yeah one one other hisry Dynamic that I would like your thoughts on is just this shift to what feels like more reference design close system architectures um is that a meaningful shift that you're seeing in this upcoming cycle versus prior ones and does um more of the design coming from your compute Partners mean there's less value add and margins potentially for uh somebody on this on the server side yeah so the reference designs are kind of uh I think they're they're excellent but you have to remember that not everyone wants you know a uh a red Corvette okay and the a lot of people they want to they want to customize their car a little bit differently I mentioned a minute ago the fact that we have one customer who we build at least 20 different servers for and that's not because um they they're not sure what they want it's because they know exactly what they want because they have they have end customers who have different workloads and so their their solution is built on our hardware and their software and so with different workloads come different requirements and also different economies of of purchase so in other words you don't always need the Cadillac for for you know the job that you need to do so what what we're expert at is is bringing about the best um uh total cost of ownership metrics and that means you're going to get the best cost per dollar per watt and uh and and that includes taking reference designs and customizing them and you know to a particular customer's needs so that's what we're that's what we think will happen it already happened in dgx and hgx we think it'll happen again with the with other Tech with future Technologies great and on the last earnings call Super Micro provided guidance of 26 billion to $30 billion of revenue for fiscal 25 I was wondering if you could talk about the AI server demand environment that you're assuming to support that guidance um what gives you visibility and confidence into providing that outlook for fiscal 25 yeah when when we talk uh to our customers about uh what they're doing uh when we see some of the um when we see some of the financing that's being put in place to build uh data centers around the world uh we believe that um there's still uh there's still a lot of Runway left and uh you know that that demand continues to be very strong so that's what gives us um you know confidence in um you know in the uh in the overall Market and you know one thing that we all have to consider as we think about the server Revenue Outlook is um how you're thinking about the you know generation of components and the timing of those components so um you know what are you assuming as it relates to the Blackwell chips and and that Outlook um what are the potential offsets to the extent that there's you know more Hopper demand uh if there is some sort of slowdown on the Blackwell side MH yeah so we uh I think we we said on our last earnings update call that we expected um you know um the first half of 25 which is the second half of our fiscal year that there would be um you know that we would really start to to ramp in with with the gb200 uh with Blackwell and so the um but in the meantime we have we have really highly efficient highly reliable um you know h100 h200 liquid cooled racks that we can that we can ship right now and uh and and that we are shipping right now so therefore um we think that that uh there's a there's still a lot of a lot of Runway left on those products and we've got the you know we have Mi 325x coming out and uh and so there's still there's still a lot of products there that we can provide that customers want and we we started out this fir side chat talking a little bit about super micros investments in liquid cooled servers that may have impacted margins a little bit last quarter for the guidance in the upcoming quarter um could you talk a little bit about you know liquid cooling as a margin headwind and when and why does that get better and um while we're on the topic of of gross margins um I think you also called out uh customer mix as a impact as well so if you could touch on that that'd be great sure so we we mentioned on our again on our conference call that we shipped about 800 that we couldn't ship about 800 million um you know to a customer that whose data center wasn't ready and um so those things happened you know that was a that would have been a better margin profile so that hurt us a little bit on margin side uh in Q4 we weren't uh expecting that um and then also we we encountered more costs than we expected in in ramping up on large scale uh shipment of liquid cooled racks so we had we had more expedite costs we had higher component costs uh we had manufacturing we were still working out some of the manufacturing efficiencies not of liquid cooling but of Li of shipping at large quantities and so that that was really the uh the challenge but we've perfected that process now and so we went we went right into you know into Q2 and uh and so the processes are much more efficient efficiency to me means you know U um a better cost profile and so uh that's why we were able to you know to give the guidance that we gave that's great and maybe just on that so it sounds like some of the expedite costs and initial efficiencies of liquid cooling will fall off um you're probably getting a little bit of operating leverage and it seems like the production process is better is that what gives you confidence around the 14 to 177% long-term ver margin Outlook um you know why is that the right range and you know maybe you can talk about uh why the the gross margin trajectory should get better throughout the year sure so you know super micro sits between between the uh the odms on the low side and the the large server manufacturers on the high side so we uh we we sit in the middle as a producer of customized Solutions and so we uh we think that we still believe that we have the best value um you know to our customers because of the again because of that cost per per watt or or per dollar uh metric and so that's where that's where we set our Target margins at 14 to 17% now when we in the early stages of h100 when we were one of the we were one of the first to start to start shipping reliable um efficient h100 servers we started ramping uh with uh with great demand because we were you know one of the few companies that that could do that so we were able to to command higher margins than even we expected as we we went over 18 um so uh now I think what you have is you have there's a little bit of a pause here as we start as we uh we await the new technologies to come out and uh and so that uh brings about a little bit more you know more competition um but we think that in the long run we still we still think 14 to 17 is a is a good Target for us and uh and if you look back over history uh we um you know it's one that we it's achievable for us um shifting gears and maybe talking about liquid cooled AI servers um super micros shipped uh a bunch of uh liquid cooled AI server racks last quarter I don't think it's too controversial to say that um it was the first to Market to deliver something like that at scale and you know Super Market certainly talked about the strength in the market share there um you know why is liquid cooling important um you know even with hopper based AI servers um you know what portion of your sales are liquid cool today and how big do you think that'll get over time yeah so we didn't we didn't announce what portion of it is but one thing we said was that you know we grew from between the March quarter and the June quarter we we grew a billion and a half dollars and we said that that that that that growth came a lot from liquid cooled racks and the reason we think it's important even for the hopper is that uh we've always promoted Green Green Computing and so we completely believe that it makes sense to utilize less energy less Power by using liquid cooling and by and we actually used highly efficient air cooled you know um uh designs to get the best performance that we could out of air cold and that that had to do with the way we designed all of our products from the chassis up so liquid cooling is a natural extension of that it's trying to lower your lower the carbon footprint Green Computing it's been part of our it's been part of our DNA for a long time um we still promote that but the market wasn't quite ready for that and that was one of the reasons we even you know discounted it to try to get a foothold and um we weren't sure where all of the competition was but we kind of found out that we were actually we actually had an edge and that and that edge we believe is going to help us because now where the market is headed is where you have to have liquid cooling and so guess who happens to be ready to ship uh liquid cooled uh products and others are going to have to do the same things that we went through in terms of Engineering in in terms of you know Manufacturing because manufacturing and Manufacturing knoow is very overlooked but but we're we're one of the you know we're one of the remaining companies in the US that is building things here in in you know here on America on us soil because we we know how to do that and uh and a lot of our customers like the fact that we make our products here that we design our products here and uh so we're we're we're proud of that fact and just as a followup on that um maybe you can talk a little bit about super micro liquid cooling design advantages relative to to peers um is it you know more in-house design and uh in-house sourcing um obviously there are a lot of liquid cooling uh component companies out there that uh may sell to some of your competitors um like what's different about a super micro liquid cooled AI server versus is someone else's sure that's a fair fair question I so you know there's not a lot of um products we could compare that with on on a scale on a scale basis um but one thing I can tell you is that we put the same effort or maybe even more into into our our liquid cooled design as we have all of our all of our products and that is we we design them carefully and uh and and and and thoughtfully to make sure that they are um compatible with all of the other uh products in in the super micro you know ecosystem that means that we can we can prepare liquid cooled racks for AMD products for Intel products you know uh gouty products for or and Nvidia h100 to h200 uh so um it's really it's really the same level of care and Des design and um and and and and we believe that that's going to carry that's going to carry us in the future um in response to a lot of the demand that super micro has been seeing uh the company has been investing in production capacity expansion including uh with the new facility in in Malaysia um you my understanding is that production in Malaysia is supposed to come online in uh November of this year um could you talk a little bit about what that ramp in production looks like and what's the best way to think about super micro uh capacity whether that be in Revenue terms or rack terms um you know whatever you think would be most helpful for the audience here sure so we had we had said that we have a rack uh capacity of 5,000 uh you know servers per month and then we went on to say that a thousand of that was um we used to say a th000 a month uh capacity uh per month for liquid was of that 5,000 was liquid cooled so now we're actually at500 in in July uh Charles said that we were at500 uh liquid cooled racks capacity uh that doesn't mean that we're shipping that amount that just means that's what our capacity is so to your question uh you know we have a site in Johor Malaysia which is about 25 minutes away from Singapore and we're very excited about that site and uh we we believe that it it dovetails nicely with the demands uh in uh in Asia for you know AI Computing and it also gives us a chance to uh lower the cost envelope uh in in a lot of areas um and so we're we we we want to produce uh liquid cooled RS you know in Malaysia but that's we're not going to start we're not going to start there but that's where we want that's where we eventually want to you know want to go and uh we think that um um we think that we have I think we've announced that we're going to uh increase uh by year by our fiscal year end um June of 25 we'll increase our liquid cooled capacity up to uh 3,000 racks per month and just as a point of clarification when we think about the 5,000 rack capacity and the 1500 on liquid cooled is that including Malaysia or is that kind of the the current today that's the current today okay got um could you touch on the uh the working capital requirements and whether or not super micro potentially needs to raise more funding to support customer demand yeah so we um you know last year we more than doubled our revenues you know we went from 7.1 billion to almost 15 billion and uh and and by the way our profits went up 87% so we needed more Capital clearly to take our inventory levels up to 4.4 billion at June at the June quarter end and to take our accounts receivable up to about 2.7 billion so it took uh takes it absorbs working capital to carry those figures so we uh we did have to do we did have to do some Equity raises but now um we believe that we're an IG profile company and that and as such we we our goal now is to try to utilize our balance sheet to uh to get unsecured lines you know unsecured funds uh and and that will help us uh much better than uh some of our our historical methods of of borrowing money which were basically on asset based lines and so uh so we think that the next phase uh we we want to move to you know to using debt as a you know for our for working capital and uh that doesn't you know doesn't based on you know growth of course sometimes you know we we may have to we may have to do something different but hoping to use uh you know to use debt to finance our our growth um let's talk a little bit about customer types um on the last earnings call Super Micro had talked about um being hyperscale ready and I was wondering if you could just clarify where super micro's position is right now as it relates to hyperscale customers I'll Define those as the big four versus nextg hyperscale companies which are obviously this group of large and emerging uh group of csps yeah the uh you know the the definition of a hyperscale is definitely changing you know you know right now because it's really the companies that are providing you know massive amounts of data you know and storage to its customers with the ability to scale and so um you know as you as you mentioned Michael there's kind of a new there's an there's an emerging group of companies that have been that have stood up and that are building data centers first in the US or now around the world also over in in Asia and the Middle East and um in Europe there are um you know former Bitcoin Miners and others that are standing up AI as a service you know in infrastructure as a service uh you know at in at large scale and so so yeah the the the definition of a hyperscaler has started to started to evolve a little bit because you have some companies now that are really handling some very big customers a lot of data and in some cases they're taking they're taking some of the they're helping out with some of the capacity requirements of some of the other hyperscalers so then then they become like a they they're kind of a quasi hyperscaler so um then you've also got some companies with the generative AI models large language models they are building you know and we're shipping to some of those customers that are building the largest uh some of those customers that are building the largest clusters in the world and uh and that is going to be um in providing uh you know generative AI Solutions companies are often now doing a Sandbox trying um to build out Enterprises are trying to build out their potential use cases for AI um you know at using a CSP but eventually they they they they may decide to build their own uh Data Center and and that's what one of the things that super micro is is moving towards is what we call um Data Center building block Solutions and that is we want to help customers to design their their data center properly utilizing liquid cooling which means that they can use less capex to buy less smaller chillers they can also um use they can also save money on Opex by uh having less electricity requirements and remember if you need a TW a 20 megawatt data center um if you are using liquid cooled racks in there it's going to make a huge difference in your density and how many racks you can get into the data center and also in in in what your power requirements are so we want to we want to be able to assist our companies with our data center building block solution um products to to help them to maximize their you know their their Green Computing element of uh data center usage I think it's been well publicized and reported on that um super micro is one of the key AI server vendors for the xai Memphis super cluster you know 100,000 GPU uh cluster um was xai the 20% customer last quarter anything you could share about um demand Trends you know from from that customer um and how would xai be characterized when you think about the customer segmentation that super micro lays out yeah so we we try not to talk uh too much about our customers and and let them speak to that but um but I can say but I think if in terms of how we characterize customers you know we have three verticals you know we have a 5G Telco Edge product vertical and then we have a um uh an Enterprise uh vertical and then we also have a large Data Center and OEM Appliance vertical so the large data center OEM Appliance the OEM Appliance is really like a new mechanics where they take our server they put their their their software on top and they provide a solution in their case like a hyper converged infrastructure or ACI HCI uh solution and uh we have other customers that use our servers uh on as an OEM Appliance to provide cyber Security Solutions um you know kind of a zerob based trust uh um you know cyber security um product we uh and so that's a good business model for us because customers are buying from us you know quarter after quarter then we also have customers like Intel that use uh what in the Enterprise vertical they're buying from us we we designed a very unique um highly efficient uh server for them back in like 2016 2017 so they're in the Enterprise vertical and then you've got the the you know kind of let me let me jump back to the OEM and large data center then you've got customers that are that are um that are just providing AI as a service they're providing a um you know a large data center um and uh you know and we also uh you know have a lot of customers in that category as well that that vertical is done very well this year um we just have a couple minutes left um I was wondering if you could end with a more big picture Outlook you know what are super micro strategic priorities in the next 3 to five years do you expect super micro to look more like an odm or an oem or somewhere in between yeah so I mean our goals in the next five years are really to um you know to help um help our customers maximize their data center experience number one continue to provide customized differentiated Solutions um high performance High reliability uh optimized for the for the customer's particular workload and application and uh we uh but we want to provide uh you know in toin total Solutions and so we view ourselves in a in a unique uh category of uh you know of not you know we're not a cm and and also we're not uh you know we're not we're not yet a large uh server in the large server category but um at at 15 billion not not not doing too bad U but we really want to provide our customers with the very best product and the very best experience that uh that they can have and we have some of the very most the very demanding we have very demanding customers uh too and we're we're fine with that it's a wonderful place to cap off it's uh it's been a privilege to be able to spend some time with you thank you so much David yeah thank you