Super Micro Computer (SMCI) Q2 2025 Earnings Call Transcript

Super Micro Computer (SMCI 4.32%)
Q2 2025 Earnings Call
Feb 11, 2025, 5:00 p.m. ET

Contents:

Prepared Remarks Questions and Answers Call Participants

Prepared Remarks:

Operator

Thank you for standing by (Technical difficulty) Charles Liang, founder, president, and chief executive officer; David Weigand, CFO; and Michael Staiger, senior vice president of corporate development. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you.

Michael Staiger — Vice President of Corporate Development

Good afternoon, and thank you for attending Super Micro’s second quarter fiscal 2025 business update conference call for the second quarter, which ended December 31st, 2024. With me today are Charles Liang, founder, chairman, and chief executive officer; and David Weigand, chief financial officer. At the end of today’s prepared remarks, we will have a Q&A session for sell-side analysts. Additionally, the company will not address any questions regarding the delay in the filing of the company’s fiscal year 2024 10-K and 10-Qs due thereafter.

During today’s conference call, Super Micro will address business and market trends from the second quarter of fiscal ’25, including our financial outlook and operations, our strategy, technology and its advantages, our current and new product offerings and competitive industry and economic trends. We will discuss the estimated financial results but reference to any financial results are preliminary and subject to change based on finalized results contained in future filings with the SEC. By now, you should have received a copy of today’s news release that was issued after the close of market and is posted on our website where this call is being simultaneously webcast. Any forward-looking statements that we make are based on facts and assumptions as of today, and we undertake no obligation to update them.

Our actual results may differ materially from the results forecasted, and reported results should not be considered as an indication of future performance. A discussion of some of the risks and uncertainties relating to our business is contained in our filings with the SEC, and we refer you to those public filings, including our most recent annual report on Form 10-K. During this call, all financial metrics associated and growth rates are non-GAAP measures other than revenue and cash and investments. This call is being live broadcast and the Super Micro investor relations website and is being recorded for playback purposes.

An archive of the webcast will be available on the IR website and is the property of Super Micro. Our third quarter fiscal 2025 quiet period begins at the close of business Friday, March 14th, 2025. With that, I will turn it over to Charles.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you, Michael, and thank you to everyone for joining us. We have some important updates today on our financial filings, operational progress, technology innovation, and business opportunities as we cross the midpoint of our fiscal 2025, I will begin by reviewing some key financial highlights from the December quarter. Our preliminary fiscal Q2 net revenue is projected to range between $5.6 billion and $5.7 billion, making a 54% year-on-year increase at the midpoint. Despite some negative impacts on cash flow and market misperception due to the 10K delay, we achieved a fairly good quarter, driven by sustained AI demand from both existing and new customers.

Our growth trajectory for fiscal year ’25 remains promising. Highlighted by the beginning of our transition from Hopper to Blackwell GPUs, we expect the growth in new generation platform to accelerate as supply ramp this quarter and beyond. We have confidence that our calendar year ’25 growth could be a repeat of calendar year ’23, if not better, assuming that supply chain can keep pace with demand. Our preliminary fiscal Q2 non-GAAP earnings was in the range of $0.58 to $0.60 per share versus $0.56 last year, representing approximately a 5% year-on-year growth.

Non-GAAP gross margin was approximately 11.9% and non-GAAP operating margin was approximately 7.9%. Margin was temporarily under pressure due to the 10K delay disruption, the new product R&D investment, and customer and product mix. In a separate press release issued today, we announced a private placement of $700 million in new 2.25% convertible senior notes due in 2028 to support our rapid business growth immediately. We have also privately amended a portion of our existing convertible notes due in 2029 with almost all investors participating in the amended notes.

This will support our growth, including Super Micro 4.0 initiatives, DataCenter Building Block Solution, DCBBS, and some brand-new GPU platform architecture design. Before diving into the details of our operations progress, let me begin by sharing an update regarding our financial filings. Our financial team and our new auditor, BDO, have been fully engaged in completing the auditor process. Based on our progress to date, we are confident that our fiscal year ’24 Form 10-K and the first two quarters of fiscal year ’25 Form 10-Q will be filed by February 25th this year.

As previously stated, the special committee found no evidence to support the former auditor’s reasons for resignation. However, over the past two quarters, we have added senior leaders in corporate communication, operations, finance, legal and compliance departments. We will continue to add more top experienced leaders to build a stronger corporate foundation for our rapidly growing and expanding global business, including the CFO, CCO, and other positions. As you know when a company quickly grow 4x business in three years like Super Micro, adding more senior leaders is also a natural requirement.

Especially, we know, we will continue to grow strongly in the future. Moving on to our technology progress, we are excited to announce that our NVIDIA Blackwell products are shipping now. We have begun volume shipments of both air-cooled 10U and liquid-cooled 4U NVIDIA B200 HGX systems. Meanwhile our NVIDIA GB200 NVL72 racks are fully ready as well.

Utilizing our system building blocks, we are going to soon offer more brand-new platforms for customers seeking further optimized, higher-density, and even greener AI solutions. While most key component are ramping at full speed, it will take some time to fulfill our current AI solution backlogs. Some customers also need more time to finish their DLC datacenter buildout. At the same time, we see strong new demands keep coming in from enterprises, CSPs, sovereign entities, and hyperscalers.

We are expanding and enhancing our total liquid-cooled datacenter infrastructure solutions featuring the latest DLC technology, exemplified by the xAI Colossus, the world’s largest liquid-cooled AI supercomputer. Super Micro is the undisputed leader in driving industrywide adoption of DLC technology, which reduces customers’ opex and achieves green computing. We expect more than 30% of new data centers worldwide to adopt liquid-cooled infrastructure within the next 12 months, driven by the rapid and continued growth of AI. Green computing deserves to be everywhere.

Our DLC long-term investment and leadership provide a sustainable competitive edge and economies of scale, far ahead of competition. Super Micro’s DCBBS consolidates servers, racks, networks, storage, water towers, software management, and service for an end-to-end solution. The true value of DCBBS is to save power, reduce space, and decrease water consumption, resulting in up to 40% lower TCO for our customers according to our calculation. It accelerates new datacenter deployments and helps modernize existing infrastructure in weeks or months, rather than quarters and years, significantly improves datacenter TTD and TTO.

We are expanding our DCBBS to include more key subsystems quarter after quarter and will become a true one-stop-shop DC partner to the industry soon. On the production front, our new Malaysia campus will soon ship products to our regional partners. Our Taiwan and European production facilities are also experiencing significant growth. In Silicon Valley, we are rapidly expanding our manufacturing sites to increase our DLC rack-scale production capacity.

The U.S. campuses boast an impressive 20 megawatts of power, enabling us to produce over 1,500 DLC GPU per month in the U.S. To better support our key partners and align with current government initiatives, we are planning substantial domestic manufacturing expansions in various regions across the U.S. These strategic expansions will ensure we meet the increasing demand for our products and services, while maintaining our commitment to key partners for quality, security, TCO, TTD, and TTO.

To summarize, we have been a product and technology leader in the IT industry for over three decades. As we continue strengthen our internal operations and expand our U.S. and global manufacturing footprint, we aim to turn these progresses into value for shareholders, customers, and partners. Our first-to-market advantage of delivering the most innovative AI infrastructure technology with Blackwell, coupled with exceptional product quality, service, software, networking, and security with DCBBS, will continue to reinforce our leadership as the premier US-based datacenter infrastructure solution provider.

With our expanding technology leadership and today’s AI trend, we believe it will result in a similar growth trend for us like 2023. 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 ’26. Before passing the call to David for the financial overview, I want to thank all of our partners, customers, investors, and Super Micro team members, and express my deep appreciation for their continued support.

With that, I will now turn the call over to David.

David Weigand — Chief Financial Officer

Thank you, Charles. Please note, these numbers are preliminary and unaudited, subject to some change upon completion of review by management, our audit committee. And additionally, our independent audit firm has not completed its review procedures with respect to this preliminary financial information. So, to start, again, we expect Q2 fiscal year ’25 revenues in the range of $5.6 billion to $5.7 billion, up 54% year over year.

Again, growth was driven by demand for air-cooled and DLC rack-scale AI GPU platforms. AI-related platforms, again contributed over 70% of revenue for Q2 across enterprise and cloud service provider markets. The Q2 non-GAAP gross margin is approximately 11.9% versus 13.1% last quarter due to lower margins from product and customer mix. And you’ll recall that on the Q1 earnings business update call, we guided down 100 basis points for this quarter.

The non-GAAP operating margin is approximately 7.9% and which excludes $82 million in stock-based compensation expenses versus 9.7% in Q1 due to those lower gross margins. Other income and expense is approximately $8 million, consisting of $15 million in interest and other income, offset by $7 million in interest expense. The tax rate is approximately 15% for GAAP and 17% for non-GAAP. GAAP net income will range from $315 million to $325 million and non-GAAP net income $375 million to $392 million.

Non-GAAP net income excludes $63 million in stock-based compensation expenses, net of the related tax effects of $19 million. GAAP diluted EPS is approximately $0.50 to $0.52 versus prior guidance of $0.48 to $0.58. Non-GAAP diluted EPS is approximately $0.58 to $0.60 versus guidance of $0.56 to $0.65. We expect a GAAP diluted share count of approximately 636 million and a non-GAAP diluted share count of 647 million.

The closing inventory was approximately $3.6 billion versus $4.9 billion last quarter. Capex was $28 million. Cash used in operations was approximately $240 million versus cash generated from operations of approximately $409 million in Q1. Super Micro began the second quarter with approximately $2.1 billion in cash and recorded approximately $320 million in GAAP net income for the second quarter.

Cash was provided from lower inventory and other sources totaling $1.5 billion, and then the company used cash to pay down accounts payable by $1.2 billion. We realized higher other receivables from purchase rebates and prepaid inventory of $484 million. We had increased accounts receivable of $335 million. We also reduced our bank loans by $346 million net and we incurred capital expenditures of $28 million and had other uses of cash totaling $87 million.

This resulted in a reduction in cash during the quarter of $660 million, thereby ending the company’s second quarter fiscal year ’25 quarter with $1.4 billion in cash at the end of December. Now I want to point out, we’ve continued to prudently manage our working capital. And for the month ended January 31st, 2025, we ended with approximately $2 billion in cash. Turning to the balance sheet and working capital metrics compared to last quarter, the Q2 cash conversion cycle was up at 104 days versus 97 days in Q1.

Days of inventory was 78 days compared to the prior quarter of 83 days. Days sales outstanding for Q2 was 47 days versus 42 days last quarter, while days payables outstanding was 21 days compared to 28 days last quarter. In a separate press release issued today, we announced a private placement of $700 million of new 2.25% convertible senior notes due 2028. And we privately amended our existing $1.7 billion convertible senior notes due 2029.

The company is reconfirming that no previously issued financial statements require a restatement. The company, however, made certain adjustments to the preliminary unaudited results for the fourth quarter of fiscal 2024 that it had announced on August 6, 2024. The adjustments recorded in the results for the fourth quarter of fiscal year 2024 include an increase in net sales of approximately $46 million and an increase in the cost of sales of approximately $96 million, which included a charge due to an increase in inventory reserves of approximately $45 million. There was also an increase in operating expenses of approximately $5 million.

Until the company’s fiscal year 2024 financial statements are filed the company is required to reassess its accounting estimates for financial reporting. The charge for inventory reserves results from an unanticipated decline in the market value of certain components that were held in the company’s inventory or on noncancelable purchase orders at the end of fiscal year 2024. Collectively, these changes resulted in a downward adjustment to the previously announced preliminary unaudited fiscal year 2024 and fourth quarter of fiscal year 2024 GAAP and non-GAAP diluted net income per common share of approximately $0.09. That’s based on a post-split diluted shares outstanding basis.

The foregoing adjustments are to previously announced preliminary unaudited financial results, and as such, they do not constitute a restatement. For the third quarter of our fiscal 2025, we are expecting net sales in the range of $5 billion to $6 billion. We expect the GAAP and non-GAAP gross margin to be approximately 12%. And we expect GAAP and non-GAAP operating expenses to be up approximately $17 million sequentially and GAAP and non-GAAP other income and expenses to be a net expense of approximately $12 million.

We expect GAAP net income per diluted share of $0.36 to $0.53 and non-GAAP net income per diluted share of $0.46 to $0.62. And the company’s projections for GAAP and non-GAAP net income per diluted share assume a tax rate of approximately 10.7% and 12.7%, respectively, a diluted share count of approximately 642 million shares for GAAP and a diluted share count of approximately 653 million shares for non-GAAP. The outlook for Q3 of fiscal year 2025 GAAP net income per diluted share includes approximately $65 million in expected stock-based compensation expense and other expenses net of related tax effects of approximately $17 million, which are excluded from non-GAAP net income per diluted share. So, again, I want to point out, revenues for the trailing four quarters are between $20 billion and $21 billion.

And for the fiscal year 2025, we are updating our revenue guidance from a range of $26 billion to $30 billion to a new range of $23.5 billion to $25 billion. So, we’re very happy to announce that the company has raised money through the issuance of new bonds. And we will continue to improve our liquidity as our growth requires it. The final — I want to end by saying that the final financial results reported for this period may differ from the results reported here based on the review by BDO, our new independent registered public accounting firm, but we expect to complete our fiscal year 2024 audit by the February 25th filing extension date that we have been granted by NASDAQ.

So, Michael, I’ll turn it back to you.

Michael Staiger — Vice President of Corporate Development

Sandra, we’ll now take questions. (Operator instructions) Our first question comes from Michael Ng with the company, Goldman Sachs. Michael, your line is now open.

Michael Ng — Goldman Sachs — Analyst

Hi, good afternoon. Two questions for me, if I could. First, I was wondering if you could talk a little bit about the $40 billion fiscal 2026 revenue outlook. What informs your confidence there? If you could shed any light on backlog or pipeline or product road map that is informing the outlook, that would be great.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. I mean our product line continues to grow. We have industry industry-standard product line plus lots of chip set including some confidential product under development. And we have a customer engaged with us for those products.

So, this year, even taking today we grew about 60%. Last year, we grew 110%. So, the coming year, fiscal ’26 at this moment, we believe that we will grow 65% at least. So, that’s, I believe, a very conservative estimation in production capacity.

I mean U.S.A. now, our utilization rate only about 55%, Taiwan utilization rate is only about 60%, Malaysia utilization rate is still about 1% only. So, there are a lot of room to grow for us.

Michael Ng — Goldman Sachs — Analyst

Great. Thank you, Charles. And just as my second question, I was wondering if you could talk about the mix of Blackwell and Hopper servers in the quarter, not looking for anything specific, but was it different than what you may have expected was Hopper stronger. It was Blackwell affected by any supply chain constraints?

Charles Liang — Chairman, President & Chief Executive Officer

We have both already, right? Hopper has been a very mature product, H200, for example. And then Blackwell, we have GB200 fully ready in production and then for B200 HGX, we have a 10U air-cooled for ready for production and then 4U liquid-cooled fully ready for production. And we already accumulated some good volume backlog back order and continue to see a lot of new order coming. So, I believe we do not share the detail about the percentage.

But basically, for sure, more and more customers like to have a B200 and GB200 but we have all of them ready.

Michael Ng — Goldman Sachs — Analyst

Thank you for the thoughts, Charles. Appreciate it.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you.

Questions & Answers:

Operator

Next question comes from Ananda Baruah with the company, Loop Capital. Ananda, your line is now open.

Ananda Baruah — Analyst

Hey, good afternoon, guys. Thanks for taking the questions and congrats on what’s a pretty solid print in delivering to news here. I guess two, if I could. The first is just on gross margins, Dave, what’s a good way to think about June Q gross margins in the context of your guide? And then just sort of the second one there, this is the second part of my first question.

I have a follow-up question as well. What’s a good way to think about gross margins through the Blackwell cycle? This is obviously a key question for people, and they want to remove the concern off the table that there could be material margin pressure through the Blackwell cycle. And then I have a follow-up. Thanks.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. Thank you for your question. for sure, when product becomes mature, like H100, H200, then we have to face a price competition strongly. But for Blackwell designated GB200 or B200 for sure, whenever they are new product, our margin will become much better.

And especially talking about liquid cooling, we believe DLC or overall difficulty in market share will grow all the way to 30% or even more in next 12 months and in terms of liquid cooling in the last 12 months, I believe we we offer a majority of global liquid cooling. So, when faced with Blackwell opportunity, most of the customers that do go for liquid cooling, I believe we have a much better position. Let me just add that when they are focused take not enough.

Ananda Baruah — Analyst

Most of us are focused on the gross margins. It’s been rightfully so, but I’ll miss the critical point that we’re driving operating margins above our targets, that translates into shareholder value.

David Weigand — Chief Financial Officer

So, Ananda, this is David. One thing I would add is if you look back to what happened with H100 as Charles mentioned, Super Micro was the ones that had — a company that had a stable platform and — which became a market leader — and so that helped our margins as they crept up to 18.8%. Now of course, we’re targeting — we said that we target 14% to 17%. But the question is, to your point on Blackwell, what will the competition be able to deliver? And I think that’s going to be a big indicator of margins.

We feel like we’re in a pretty good position because we’ve already been.

Ananda Baruah — Analyst

Yeah. I appreciate that. I appreciate that, guys. And then the follow-up is just on the rev guide.

Charles, the $40 billion. So, a couple of things. You mentioned calendar year ’25 could be similar to calendar year ’24, which is about 40% growth. So, that would suggest maybe $8 billion on average in the September-December quarter of revenue.

And then the, at least, $40 billion for fiscal ’26 would tend to suggest maybe at least $12 billion on average the March and June quarters of ’26 fiscal year. So, is that sort of what you’re talking about? And then what gives the confidence, I guess, what’s the thought process underpinning that $40 billion and those kind of rev quarters? And is it GPUs, as well as custom ASICs as the TAM opens up? So, just kind of a customer question there as well. Thanks. That’s it for me.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. Thank you. Again, whenever there are new technology, we have a good chance to grow, right, kind of like this time, Blackwell and kind of DLC liquid cooling and again, we have a much higher capacity ready for liquid cooling compared with the market. And last year, we grew 110%.

And this year, basically, we will grow about 60-something percent, right? So, next year, fiscal year ’26. I believe 65% is a very conservative estimation. And personally, I hope we can grow more than that, but that’s to be conservative.

Ananda Baruah — Analyst

Thank you. Thanks, guys. Really appreciate it.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you.

Operator

Our next question comes from Samik Chatterjee with the company, J.P. Morgan. Your line is now open.

Samik Chatterjee — Analyst

Yes, thanks for taking my question, and I have a couple of questions as well. Maybe just to start off, Charles, I think the last time you mentioned, which was in 2024 that we could expect sequential revenue increases in the medium term on a quarterly basis. When I sort of look back at it in hindsight, it looks like what derailed that sequential growth to some extent, was the product transition from NVIDIA in going from one product generation to another, which also drove some change in customer behavior. As you’re thinking about the revenue target here for $40 billion for fiscal ’26, I mean, is there an underlying assumption that you won’t see a similar customer behavior change toward the next-generation product as NVIDIA goes through a transition again in that time frame? Or is there something that I’m missing in that sort of overall product transition that we should expect from your GPU supplier? And then I have a quick follow-up.

Charles Liang — Chairman, President & Chief Executive Officer

Yes. I mean for calendar ’25, for example, I believe we should be pretty able to repeat 2023 history. And in 2023, H100 launched and we are ahead of competition. So, we grew very well.

In calendar year ’25, we are facing to the same opportunity now, except before our old air-cooled and now it’s liquid-cooled. And in terms of decline, especially DLC, we have a major market share, and we have a huge capacity, 1500 rack per month capacity ready. And we already have many customers already approved in their liquid cooling data center and getting ready to deploy in high volume. So, once Blackwell in volume production, I believe we will have a strong growth.

And now we are just diligently preparing over logistics, including system enclosure, thermal solution for sure, the GPU supply from our vendor NVIDIA. So, we are well prepared. And once logistics are ready, we are ready to ramp up our growth.

Samik Chatterjee — Analyst

OK. Maybe Charles, just a follow-up on that. Go ahead. Sorry.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. I mean we are spending more effort in Asia and Europe now. In 2023, ’24, most of our markets ae in U.S.A. But now our team in Asia and Europe are becoming much ready, much stronger.

to grow market share in Europe and Asia as well.

Samik Chatterjee — Analyst

Got it. Got it. And Charles, I’ll just follow up with a question that I’m getting from investors today after the print, which is when we look at that sort of $40 billion revenue target, how confident are you about achieving that revenue target with the current customer engagements that you have relative to what you need in terms of additional customers or new customer engagements to get to that revenue that you’re targeting. If you can share your thoughts on that, please? Thanks.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, in the last few years, our growth has been very strong, except for our 10-K interrupt, right? So, in that four months, five months, we suffered a 10K impact, so our growth little bit slowed down. But we will fix 10-K filing very soon and cash flow won’t be a problem anymore. So, the quarter is strong. Capacity here, the customer is ready.

So, I believe, $40 billion forecast is a relatively conservative estimation.

Samik Chatterjee — Analyst

OK. Thanks for taking the questions.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, thank you for your question.

Operator

Our next question comes from Ruplu Bhattacharya with the company, Bank of America. Your line is now open.

Ruplu Bhattacharya — Analyst

Thanks for taking my questions. I have two. The first one is on gross margin. overall, do you think industry margins are now under secular pressure, given more competition from other AI server manufacturers? And is liquid cooling really a competitive advantage, which you can charge more for? Or is that also becoming commoditized since it looks like everyone seems to be offering their version of liquid cooling? So, David, how are you thinking about the long-term gross margin range for your business? And I have a follow-up on revenues.

David Weigand — Chief Financial Officer

Certainly. So, what I would say about gross margins are that, number one, what we count on Ruplu is being the first to market with the very best solutions. And so, right now, we have shipped GB200, for instance. And we’re very confident in its quality as a product.

And that’s really what helps to drive good margins. So, it’s not just liquid cooling. It’s really stable systems that have high quality, high reliability and also really the best performance. So, I think that our abilities in liquid cooling were already demonstrated in the prior quarters.

And it’s really our data center building block solutions, which give us a plan for the future. And so, we have a lot of things planned for the future, but data center building block solutions are one of those, where we offer a lot more solutions for the complete data center at all levels. So, again, we haven’t changed our target margin. And yes, there is competition.

There’s always going to be competition. But I think that if you look at how we’ve performed historically and our ability to engineer in all the latest technologies, I think that’s our moat. That’s our advantage.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. Let me add that little bit about DLC. Everyone is talking about the DLC solution, but how many competitors really have a DLC deployment in high volume. I guess it’s very minimal.

Last year, I believe we shipped at least the 60% of worldwide DLC solution. So, that means a lot of competitors indeed, they are ready, but they did not have experience yet. And talking about DataCenter Building Block Solution, not many providers are able to provide on-site deployment and on-site cabling, on-site servicing and now with DLC with 150-kilowatt per rack or even more power per rack, I believe the on-site premium cabling service becomes a very important value to customer. And we are a company have exactly or experience, all the successful stories.

Ruplu Bhattacharya — Analyst

OK. For my follow-up, if I can ask, as new efficient AI models like DeepSeek come about, how are you thinking about the impact on your business? And as we move from training to inference, what is Super Micro doing to further penetrate the enterprise vertical? I know you have enterprise customers. But for those enterprise customers who don’t have a large engineering presence, what is your strategy for attacking that customer base, as well as for sovereign customers? Thank you.

Charles Liang — Chairman, President & Chief Executive Officer

OK. So, for DeekSeek. I mean for sure, the software can always be more efficient quarter over quarter. So, we know that.

But the industry expense pretty dependent on financial plan. So, I believe the market size won’t shrink because of DeepSeek. And in terms of enterprise, we have been enterprise market for more than 10 years. And our team in enterprise have been much stronger than before ever, especially with our service team, management software and end-to-end data center solution, I believe it’s the right time for us to grow quickly in enterprise segment.

Ruplu Bhattacharya — Analyst

OK, thanks for all the details. I appreciate it.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you.

Operator

Our next question comes from Nehal Chokshi with the company in Northland Capital Markets. Nehal, your line is now open.

Nehal Chokshi — Analyst

All right. Thank you. A quick question here. Can you tell us whether or not backlog is up Q-o-Q for the December quarter?

David Weigand — Chief Financial Officer

So, we don’t generally give out backlog figures, Nehal. But what we can say though is that backlog tends to follow the chip cycle. And so, when you have new chip solutions coming out, you’ll see backlog start to build as solutions become dependable and reliable and then they’ll tail off as the products mature. And so, with the expectation of some of the new chips coming out, we believe that you’ll see a growing backlog industrywide.

Nehal Chokshi — Analyst

Got it. Thank you. And then I apologize in advance. This question is going to sound a bit Turkish.

But Charles, you characterized the $40 billion target at 60% year-over-year growth. And given that fiscal year ’25 is going to be around 60% year-over-year growth in likely impacted by the 10-K delay. Therefore, 60% year-over-year growth for fiscal year ’25 is potentially conservative. But I mean, is historical year-over-year growth really a good indicator of future demand? Have you looked at the actual like pipeline of demand and said, yes, we believe that this is the — how big is the pipeline, and this is a reasonable conversion rate and therefore, $40 billion is indeed very reasonable.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, very good question. From both, I mean, we validate the business from all different dimension, right? I mean from our historic growth, last few years, we have been growing more than 60% year over year, basically, except this year, right, cut the year because 10K delay, and we have some cash flow constraints. So, we may grow only about 60% or 60 some ship. But other than that, I believe, looking for next few years, our growth every year should be more than 60%.

And second, from a customer demand from a customer backlog from a customer commitment sales commitment looks like $40 billion is relatively a very conservative target.

Nehal Chokshi — Analyst

Great. Thank you. And if I might squeeze one more in. I’m sorry, but I’m not quite getting what you mean by data center building block architecture.

Can you give me a concrete example as far as what does that mean? Is it like basically the cooling tower design or something else? Can you put a little more concreteness behind that?

Charles Liang — Chairman, President & Chief Executive Officer

OK. Still a little bit confidential, but I’m happy to share. I mean it’s like our rack scale, building block solution. We want to build it in their rack.

We have ambition for them. Same thing, a customer wants to build their data center. We will have everything for them. And today, we offer more and more key components.

For example, liquid cooling, the overall kind of liquid cooling pump and other depicting pump and water tower, right, dry tower, water tower. A little bit to share, I mean all the people building data center need those key components. We try to provide all of them, including software, including management tool and experience. So, I hope customer can one-stop shop with Super Micro to build their data center.

Make their data center time to market much quicker and also cheaper lower cost, right, and quicker to build their data center. And that’s our consumption, better quality.

Nehal Chokshi — Analyst

All right. Thank you.

Operator

Our next question comes from Jon Tanwanteng with the company, CJS Securities, Inc. Jon, your line is now open.

Jon Tanwanteng — Analyst

Hi, thank you for taking my question. Charles, I was wondering if you could break down the factors or maybe David, driving the reduction in the ’25 revenue guidance. How much is maybe pricing related? How much do you think is related to delays or availability of Blackwell and the impact on Hopper demand? And then maybe how much was related to your 10-K and maybe customers not feeling on. So, great about doing business with you until that’s filed.

David Weigand — Chief Financial Officer

Yeah. I would say, Jon, that probably the biggest factor was just the delay in new technology. Because when you think about it, we were all set to go we were all set to ship with liquid cooling. We were ready.

But the problem was that the — not everything else was. So, that was certainly a huge impact. I think obviously, 10-K delay was a distraction. But it’s more about technology for us because we count on being early to market and so that’s what creates the big jumps that we have, the kind that took place last year from Q3 to Q4 when we went up $1.5 billion in one quarter.

But remember, we finished the four quarters that ended June 30th at $15 billion. And now here we are two quarters later, and now we’ve — now we’re at a trailing four quarters of over $20 billion. So, we have the dynamic to accelerate really well when the technology is there that customers want. And I think if you look at all of the spending predictions and intentions that are out there, you can see the money being put in place to spend money on data centers and on data center solutions.

And that’s why we’re here.

Jon Tanwanteng — Analyst

Got it. Thank you. And then can you talk about your capital needs and cash flow expectations going forward as you start getting into the quarters or you’re maybe generating $8 billion in revenue, $12 billion of revenue as implied by that $40 billion target?

David Weigand — Chief Financial Officer

Yeah. So, we’re working on a number of different fronts to raise additional capital, which we just did with some of our — actually the investors that put money into us previously with our bonds. So, they came back and provided additional capital for us. So, we will — we’ve always said we want to use our balance sheet as we can to generate additional funding for our growth.

But just like we’re preparing on the engineering side, we’ll also prepare on the capital side.

Charles Liang — Chairman, President & Chief Executive Officer

Yeah. In terms of average, our inventory and AR, I guess, the loan should be available very soon.

David Weigand — Chief Financial Officer

Yeah. We have a very unlevered balance sheet, as you know, right now because we paid down a lot — some of the bank debt. And so, we’ve paid down a lot of accounts payable. And so, we have a very healthy balance sheet.

Jon Tanwanteng — Analyst

Got it. Thank you.

Operator

Next question comes from Aaron Rakers with the company, Wells Fargo. Aaron, your line is now open.

Aaron Rakers — Analyst

Yes, thanks guys for taking the questions. Most of them have been answered or asked and answered, but I’ve got a couple here real quick. So, first of all, Charles, I just want to make sure I’m clear. Blackwell in the product cycle, are you shipping the GB200, the NVL72 today? And/or if not, is that a significant factor as far as volume shipments in your current quarter guide? And I’ve got a few others.

Charles Liang — Chairman, President & Chief Executive Officer

GB, NVL72, our position is similar to other competitors, right? So, we have a solution for ready. Now once we have support from NVIDIA and we can ship anytime, right? And other than that, our B200 indeed, I believe is some of our advantage because we have all given kind of optimized platform, especially for 4U DLC. We have lots of demand there. And we are ready to ship in volume about now.

Yes. I said last year, shipment alone, we shipped more than 3,000 rack to the market. I believe that’s about 70% of our whole market — whole DLC market last year. So, we have a much better experience, much better solution.

So, when customers are looking for GB200, for G200 liquid cooling, I believe we are in a much better position than industry average for sure.

Aaron Rakers — Analyst

Yes. That’s perfect. And then my second question is really on gross margin. I apologize to ask again on this topic.

But can you walk us through the variables that drove the sequential change in gross margin this last quarter? And I guess the other thing is that Charles, you mentioned some of the utilization rates in U.S. and Taiwan. Hypothetically, let’s say that you’re at, I don’t know, pick a number, 70% or 75% utilization rate, how much of an impact would utilization rates have on gross margin? How do we isolate that impact?

Charles Liang — Chairman, President & Chief Executive Officer

We did not provide that, but, basically, for sure, the impact of maybe 20, 30 points.

David Weigand — Chief Financial Officer

Yeah. Yeah. In the past, we’ve said if we can manufacture in Asia, we predicted that we would be able to save 1 to 2 points on the margin, Aaron. But let’s see.

And then you had another question on gross margins to walk you from back through Q2. Because, again, we forecast back in November, that we would be down 100 basis points. And that was because of the customer mix and products that we saw shipping out. Remember, we’re working on more end-of-life products, which have become more competitive as customers are waiting for the new platforms by all the different technology companies to come out.

from Intel, AMD, and NVIDIA. So, there is, of course, more people that have — that are offering solutions. But as Charles mentioned, going into the B200s, the GB series, it’s going to be perhaps a different game. But that’s my commentary on how we got to the change in margin.

And we had a little — we had some extra expenses as well because we’re spending more on R&D right now and specifically in buying some of the advanced chips as we refine our engineering and production to get ready for what we consider will be very large shipments coming up.

Aaron Rakers — Analyst

Yeah, thank you, guys.

Charles Liang — Chairman, President & Chief Executive Officer

Yes. On-site premium — on-site deployment, cabling, and service there will be another differentiation with the other competitor.

Operator

Our next question comes from Quinn Bolton with the company, Needham and Company. Quinn, your line is now open.

Quinn Bolton — Analyst

Thanks for taking my question. Just wanted to follow up on the GB200/NVL72 question. Just it sounds like you guys are ready to go, but the biggest gating factor is just support from NVIDIA, do you guys have a forecast from NVIDIA? When did you think you’re going to start to see supply of the GPUs so that you can ship the NVL72 or is visibility still pretty low on the availability of the GPUs?

Charles Liang — Chairman, President & Chief Executive Officer

We already proved pretty much everything. And now that’s waiting for — and we had some allocation, some volume. But the volume demand is way much bigger. So, we are waiting for more allocation.

So, hopefully, very soon, we can ship in a much higher volume.

Quinn Bolton — Analyst

Got it. So, just waiting for the allocation, it sounds like is the gating factor. Got it. And then maybe just a follow-up, longer-term question, Charles, on this DeepSeek impact on the industry, certainly sounds like we’ll get more deployment of AI models, which probably says we get more inferencing.

To the extent that you see more inferencing infrastructure put in place, it’s probably more fragmented. I assume that that’s good for Super Micro because it’s less concentrated, probably more variability of systems. But can you spend a second on whether you think a shift toward inferencing is positive for the business? Is it neutral? Is it negative?

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, it’s very positive. When invention becomes more popular, becomes worldwide trend, right? I mean, before, I mean, they may have a 300 buyer basically. But with even getting popular, AI, getting popular, I believe, very soon, there will be thousands of companies need to buy AI equipment or service. So, we are very happy to see the market size is growing, and many more customers are asking product, asking a total solution.

And with our application-optimized major Building Block Solution. We are able to service a variety of customers in different verticals. So, that’s another advantage we will have.

Quinn Bolton — Analyst

Thank you, Charles.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you.

Operator

Our next question comes from George Wang with the company, Barclays. George, your line is now open.

Dong Wang — Analyst

Hey, guys, thanks for taking my question. Hey, Charles, can you talk about kind of your current pipeline just in terms of the mix of sovereign AI, just especially versus three months ago? Can you kind of talk about whether you’re seeing an incremental kind of pipeline build from the sovereign AI of the world?

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, it’s also increasing. I mean, before most of the demand in U.S.A. and some other large countries only. But now, yes, we see many more countries going to build their own AI infrastructure, especially for solving AI and invention as well.

But demand is kind of worldwide now. And it’s a very exciting moment to see the AI boom continuing to be popular worldwide.

Dong Wang — Analyst

Just a quick follow-up, if I can, as we potentially head into the GB300 era later this year or in 2026, the supply chain chatter of most of the open standards as NVIDIA kind of potentially unbundles the supply chain. So, that could potentially add more customization. So, maybe directionally, can you talk about the implication to Super Micro, especially for the margin? Do you think that you can add a bit more customization, hence, more margin as we head into GB300 or it’s not material?

Charles Liang — Chairman, President & Chief Executive Officer

Yeah, technology always unlimited. People always come out with some ideas and some demand for different verticals or different applications. So, we never feel our engineers have nothing to do. So, I always do now have enough engineering manpower.

So, even today, we still continue higher engineering very aggressively worldwide. So, there are lots of room to optimize for different product lines, different verticals, and especially for invention, right? So, still lots of room to differentiate. And especially when we get into a data center building block solution. Now we are growing our market temp to get us in the infrastructure, so to provide the whole solution for people who need to build a data center.

So, I see our marketing also faster growing.

Michael Staiger — Vice President of Corporate Development

Thank you. We’re out of time. Thank you for attending the Super Micro conference call, and we’ll catch up with you soon.

Charles Liang — Chairman, President & Chief Executive Officer

Thank you.

Operator

(Operator signoff)

Duration: 0 minutes

Call participants:

Michael Staiger — Vice President of Corporate Development

Charles Liang — Chairman, President & Chief Executive Officer

David Weigand — Chief Financial Officer

Michael Ng — Goldman Sachs — Analyst

Ananda Baruah — Analyst

Samik Chatterjee — Analyst

Ruplu Bhattacharya — Analyst

Nehal Chokshi — Analyst

Jon Tanwanteng — Analyst

Aaron Rakers — Analyst

Quinn Bolton — Analyst

Dong Wang — Analyst

George Wang — Analyst

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