Super Micro Computer, Inc. (SMCI) Q4 FY2025 Earnings Call Transcript & Summary

Thank you for standing by. My name is Cameron and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. SMCI U.S. Fourth Quarter Fiscal Year '25 Business Update Call. With us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Senior Vice President of Corporate Development. [Operator Instructions].

Good afternoon, and thank you for attending Super Micro's call to discuss financial results for the fourth quarter and full year fiscal 2025, which ended June 30, 2025. With me today are Charles Liang, Founder Chairman, and Chief Executive Officer; and David Weigand, Chief Financial Officer. By now, you should have received a copy of the press release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under Events and Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation and future business outlook, including guidance for the first quarter of fiscal 2026 and the full fiscal year 2026. These statements and other comments are based on management's current expectations and assumptions involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier this afternoon, our most recent 10-K for fiscal 2024 and other SEC filings. All of these documents are available on the Investor Relations page of Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with a means of evaluating and understanding how companies management evaluates operating performance. These non-GAAP measures should not be considered in isolation from, as substitutes for or superior to financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of GAAP and non-GAAP is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we'll have a Q&A session for sell-side analysts. Our first quarter fiscal 2026 quiet period begins at the close of business on Friday, September 12, 2025. And with that, I will now turn it over to Charles.

Thank you, Michael. I will be covering our performance for fiscal 2025 and providing insights into our strategic direction for fiscal 2026. Our fiscal 2025 results represent a 47% year-on-year revenue growth at $22 billion. This growth reflects continue the strong demand for our AI and green computing solutions. Despite the 6 months cash flow impact from the delayed filing of our fiscal year '24 10-K and revenue recognition from a major new large partner. Non-GAAP earnings per share were $0.41, down year-over-year from 50% last year, primarily due to the tariff impact, although we have taken measures to reduce the impact, and we will see their results. Allow me to go a little deeper at the June revenue shortfall in what was otherwise a stronger quarter. 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 -- because 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. Despite this circumstance, we remain focused on our strategic priorities, optimizing our solutions and capturing market share. Notably, the number of large-scale plug-and-play direct customer grew from 2 in fiscal year '24 to 4 in fiscal year '25, signaling strong momentum and continuing growth potential across our customer base. We are also on track to add a few more in fiscal year '26. We continue our leadership in AI platforms and infrastructure with a comprehensive portfolio optimized for the latest GPU technologies, including NVIDIA B300 and GB300 platforms and AMD's MI350 and MI355X GPUs. Our X14 and H14 GPU Systems delivered breakthrough performance, supporting large-scale AI training and inferencing workloads and enterprise computing demands with exceptional efficiency. 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. To further simplify our customers' AI data center infrastructure deployment and time to online, we officially introduced our data center building block solution, DCBBS to the market last quarter. With our DCBBS, customers can harness our proven system building block advantage to adapt quickly to evolving market demands, especially in response to increase complex AI product cycles. Our modular architecture enable faster customization, streamlines production and reduce time to delivery and time to online. While also optimize quality, efficiency and easy of maintenance. In most of the cases, customers who use our DCBBS can finish building a liquid cool AI data center in just 18 months instead of 2 to 3 years. When converting an existing data center or a warehouse to a high-density direct liquid cooling data center, customer can complete the transformation in only 3 to 6 months instead of 12 or even 18 months. We had just begun deploying rack-scale total solutions with our DCBBS to a few key customers. Key components of DCBBS include DLC solutions, the L2A sidecar, I mean liquid-to-air cooling. CDU, especially in low CDU, in-rack CDU as well and chilled door, power shelf, battery backup, BBU, water or dry power solutions and more are coming. Our advanced second-generation direct liquid cooling DLC-2 system reduced power and water consumption by up to 40% while operating at near library-quite level around 50 decibels. This enables superior performance with reduced total cost of ownership TCO, and total cost to the environment, TCE, for modern data centers. 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. It allows cloud service provider to reduce both CapEx and OpEx capital expense and operating expense. Indeed, it delivers also great value to both AI-focused and traditional IT data centers. By seamlessly integrated DCBBS capability with our system and rack solution, we are not only enhancing customer value, but also improving our profit margins. This shift towards higher margin and revenue stream is central to our long-term strategy. We also start to strategically focus on the enterprise, IoT and the Telco markets. And initiative, we believe will improve both growth and net margin over time. In last 2 quarters, we made a significant investment to optimize our solutions for enterprise customers, introducing advanced server and storage systems tailored for hybrid cloud, AI application and Edge computing workloads. This enterprise-focused strategy will continue for many years to come. Super Micro has also launched and enhanced enterprise service program, delivering a comprehensive 24/7 global support for high-density, high-performance driven data center deployment based on optimized rack-scale architecture. Our IoT portfolio, including embedded system and Edge servers is gaining momentum across industry, like manufacturing, health care, Telco, Smart City and AI Edge applications. Additionally, we have announced strategic partnership to accelerate innovation in AI and Edge and Telecom Solutions. By expanding into this higher-margin segment, we are diversifying our revenue streams and driving long-term sustainable profitability that will benefit our shareholders. Our global footprint allows us to efficiently deploy optimized solution worldwide with minimum tariff impact, especially after September quarter. With large and volatile manufacturing campus across the U.S., Taiwan, Malaysia and Netherlands, We can deliver a comprehensive system and data center level building block and total solution to our customers directly and quickly. This robust global presence enable us to respond to dynamic regional demands, support cost-sensitive customers seeking greater value, mitigate tariff exposure and maintain a reliance global supply chain that's both agile and responsive. Looking ahead to Q1 fiscal year '26, I anticipate revenue between $6 billion and $7 billion, driven by continuing momentum across our AI [rack] plug-and-play DCBBS, software and service business, which are delivering exceptional customer value and strengthen our profitability. I'm especially excited about our DCBBS for our full fiscal year 2026, I expect at least $33 billion total revenue, supported by our expanding large and enterprise customer base, upcoming product innovation and robust DCBBS total solution. In closing, I want to thank you our employees for their dedication, our customers for their trust and our investors for their continued support. We are excited about the opportunity ahead and look forward to updating you on our progress in the next quarter. David, please?

Thank you, Charles. Q4 fiscal year '25 revenues were $5.8 billion, up 8% year-over-year and up 25% quarter-over-quarter compared to our guidance of $5.6 billion to $6.4 billion. Growth was led by demand for next-generation air-cooled and liquid-cooled GPU, AI platforms, which represented over 70% of Q4 revenues across both enterprise and cloud service provider markets. For the full year fiscal year '25, we reported revenues of $22 billion, representing 47% growth over fiscal year '24 revenues of $15 billion. During Q4, we recorded $2.1 billion in the Enterprise channel segment, represents 36% of revenues versus 42% in the last quarter, up 7% year-over-year and up 6% quarter-over-quarter. The OEM appliance and large data center segment revenues were $3.7 billion, representing 63% of Q4 revenues versus 57% in the last quarter, up 2% year-over-year and up 40% quarter-over-quarter. The emerging 5G Telco/Edge IoT segment revenues were 1% of Q4 revenues. For fiscal year '25, enterprise channel revenues grew 38% to represent 39% of total revenues. The OEM appliance and large data center segment grew 50% and represented 60% of total revenues. The 5G Telco/Edge IoT segment represented 1% of total revenues. For fiscal year '25, we had 4, 10% plus large data center customers versus 1 in fiscal year '24. Server and storage systems comprised 98% of Q4 revenue and subsystems and accessories represented 2%. 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%. On a quarter-over-quarter basis, U.S. revenues decreased 21%, Asia increased 78%. Europe increased 196% and the Rest of World increased 53%. The Q4 non-GAAP gross margin was 9.6% versus 9.7% in Q3 due to product and customer mix. For fiscal year '25, the non-GAAP gross margin was 11.2% versus 13.9% for fiscal year '24. Our long-term goal is to gradually improve gross margins through providing complete data center building block solutions and focusing on the enterprise, IoT and Telco markets. We also expect to benefit from economies of scale from higher revenues, cost-effective global facilities, including the new Malaysia manufacturing plant and customer diversification. The Q4 operating expenses on a GAAP basis increased by 8% quarter-over-quarter and 23% year-over-year to $316 million, driven by higher compensation expenses and headcount. On a non-GAAP basis, operating expenses increased 11% quarter-over-quarter and 29% year-over-year to $239 million. The Q4 non-GAAP operating margin was 5.3% versus 5% in Q3. Other income and expense for Q4 was a net expense of $5.7 million, consisting of $28.4 million in interest income, offset by $22.3 million in interest expense and FX and other losses of $11.8 million. The tax provision for Q4 was $19 million on a GAAP basis and $37 million on a non-GAAP basis. The GAAP tax rate for Q4 was 9% and the non-GAAP tax rate was 12%. The GAAP tax rate was 13% for fiscal year '25 versus 5% in fiscal year '24, and the non-GAAP tax rate was 15% in fiscal year '25 versus 11% in fiscal year '24. The Q4 GAAP diluted EPS was $0.31 compared to guidance of $0.30 to $0.40 and non-GAAP diluted EPS of $0.41 versus guidance of $0.40 to $0.50 due to lower gross margins and higher operating expenses in the quarter. For fiscal year '25, we reported GAAP diluted earnings per share of $1.68 versus $1.92 for fiscal year '24 and non-GAAP diluted EPS of $2.06 versus $2.12 in fiscal year '24. The GAAP fully diluted share count increased quarter-over-quarter from 622 million to 625 million in Q4, and the non-GAAP share count increased sequentially from 636 million to 638 million shares. Q4 cash flow generated from operations was $864 million compared to $627 million in the previous quarter. For fiscal year '25, cash generated from operations was $1.7 billion versus cash consumed by operations of $2.5 billion in fiscal year '24. Q4 closing inventory was $4.7 billion versus $3.9 million in Q3. CapEx and investments for Q4 was $79 million, resulting in positive free cash flow of $841 million for the quarter. CapEx and investments for fiscal year '25 were $183 million versus $194 million in fiscal year '24. During the quarter, we completed a convertible bond offering, raising $2.3 billion in gross proceeds before operating expenses and the costs associated with the simultaneous covered call spread and stock buyback. The Q4 closing balance sheet cash position was $5.2 billion, while bank and convertible note debt was $4.8 billion, resulting in a net cash position of $412 million versus a net cash position of $44 million last quarter. Additionally, in July, we executed a $1.8 billion facility, which allows for the nonrecourse sale of certain qualified accounts receivables to strengthen our working capital on a discretionary basis. Turning to the balance sheet and working capital metrics compared to last quarter. The Q4 cash conversion cycle was 98 days versus 124 days in Q3. Days of inventory decreased by 6 days to 75 days compared to the prior quarter of 81 days. Days sales outstanding were 40 days compared to 56 days in Q3. Days payables outstanding increased by 4 days to 17 days versus 13 days in Q3. Now turning to the outlook for Q1 fiscal year '26. We expect net sales in the range of $6 billion to $7 billion, GAAP diluted net income per share of $0.30 to $0.42 and non-GAAP diluted net income per share of $0.40 to $0.52. We expect gross margins to be similar to Q4 fiscal year '25 levels. GAAP operating expenses are expected to be approximately $329 million and to include $82 million in stock-based compensation expenses that are not included in non-GAAP operating expenses. The outlook for Q1 of fiscal year 2026 fully diluted GAAP earnings per share includes approximately $69 million in expected stock-based compensation expenses, net of tax effects of $20 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to be a net expense of approximately $24 million. The company's projections for Q1 fiscal year '26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 13%, a non-GAAP tax rate of 15.5% and a fully diluted share count of 631 million for GAAP and 644 million shares for non-GAAP. We expect CapEx for Q1 to be in the range of $60 million to $80 million. And for fiscal year '26, we expect net sales of at least $33 billion. Michael, we're ready for Q&A.

Great. Cameron, let's turn it over to a question-and-answer session.

[Operator Instructions] . The first question is from the line of Simon Leopold with Raymond James.

I wanted to get a better understanding of some of the bottlenecks or gating factors for sales. And what I'm looking at is we've got full year revenue outlook of $33 billion, so that's better than $8 billion a quarter. And we're looking at September being roughly $6 billion to $7 billion. So I would have thought that availability of Blackwells, GB200s could have given you maybe some more upside to September and a more linear outlook for the year, but this would suggest more of a back-end load. So if you could help us understand how you're thinking about the cadence through that fiscal year? And what are the bottlenecks? Or what are the restraints in terms of the September quarter and availability of the chips?

Yes. Basically, our business will continue to grow. Last year, because of the 10-K delay, we have some constraints. So we grew 47%. This year, we should be able to grow better than that. And you mentioned about the bottleneck is some chip availability, some resource availability from vendor like NVIDIA. Last year, we had to wait and see. Basically, we believe the availability will be much better than last 2 quarters. And that's why we estimated minimum $33 billion. And by the way, our new introduction DCBBS, that help customers to build a data center quicker, especially make their cloud ready for time to online much quicker. So that's another factor we believe this year, I mean, 2026, we should be able to grow better than last year.

And is any of this related to customers perhaps waiting for GB300? Or is that not a factor?

Yes, you are right. Some customers always waiting for coming soon technology, that B300, GB300. So the good thing is we have a B300, GB300 pretty much ready to go, just waiting for our partner, NVIDIA to support us.

The next question is from the line of Ruplu Bhattacharya with Bank of America.

I have 2 of them. The first one is a higher-level question. Can you talk about management strategy for competing in the AI server market? Is your focus on revenue growth and gaining market share? Or is your focus on margin expansion? And if it's both, then what gives you confidence that you can grow revenues and grow margins in this competitive market? And I have a follow-up.

Yes. Very good question. Yes, we can grow much quicker if we don't care about the gross margin and net margin. And that's why we introduced DCBBS, data center building block solution. That's a total solution to support the customer to build a data center quicker, better and also save money, more reliable. And we provide infrastructure need, including on-site deployment, networking, cabling, all different kind of service. So we believe we can grow revenue, market share and profitability, especially our data center end-to-end software solution. So DCBBS plus all the software need, customer need, including service. So we sure able to provide a better value to customers, not just price war.

Okay. Can I -- for my follow-up, can you talk about the opportunity with sovereigns? You announced an MOU data wall during the quarter. Can you give us your thoughts on expected rollout of that opportunity? And David, what margin uplift should we expect from sovereign customers versus your existing customer base such your 2 CSPs? I mean how should we think about the revenue and margin opportunity here?

Yes. Sovereign AI brings us a very good chance. There are so many countries need to build their AI infrastructure. And those countries, those people really appreciate our DCBBS data center investor in total solution. So we help them to design their AI infrastructure and help them build the AI infrastructure quicker and better. So we see a very good room, very big room to grow in that area. David?

Yes. And Ruplu, on the gross margin side, we are optimistic that we will be able to sell more complete data center BBS solutions with sovereigns. And so therefore, we don't have enough experience to be forecasting specific gross margins. But we're very optimistic that with the additional offerings that we will have, that there's upside there.

There are so many countries, especially in Europe, in Asia. So they're all really a great [indiscernible] Their AI infrastructure for their country, for their company. And we are working very closely with them.

The next question is from the line of Ananda Baruah with Loop Capital.

Yes, Two, if I could, the first one is maybe a little bit more of a clarification. You -- in the first 6 months of the calendar year, you guys saw as did the industry elongated, a little bit elongated customer purchase cycles, first from the HCX -- from the HCX GB decision-making situation in the March quarter, then the B200, B300 sort of decision-making situation in the June quarter. Now Charles, it sounds like it's one of the first questions. I think it was to [Sumit's] question, you may have suggested it sounds like you were suggesting there may then currently be some B300 sort of elongated customer decision-making as well. So just clarify, are you still going through, are we still not yet to normalized customer decision-making cycles? Because if that's the case, I think it's useful for us to understand that as distinct from what the organic demand backdrop may be as we go through the year here? And I have a follow-up after that.

Yes. As you know, NVIDIA have so many products, so many better products, new products. And we are very happy to provide all the new technologies, new products and make them available for the market as soon as possible. Like I just mentioned, B300, GB300, we work with our partner very closely and make sure once NVIDIA able to ship in volume, we can service customers quicker. And with our DCBBS, we exactly optimize for customers' data center, including the large data center and middle-sized data center or even small-sized data center. So we are very happy to support a lot of middle-sized and small-sized AI infrastructure as well. That's part of Super Micro's advantage. We provide a total solution and make the customer's job much easier to build their AI factory, AI infrastructure quicker and better.

And just as a follow-up, can you guys, any context you can give us guys around the comment of large-scale data center customers expanding to 6 to 8 in fiscal '26. Sort of what flavor of customers might that be? When do you consider someone to large scale? And what market domains might those additional large-scale data center customers fit into?

Yes. Most of the large-scale AI CSP continues to have a strong demand. And we are prepared to support them as well. The good thing is with a much strong cash flow now. So we are ready to support a more large-scale data center as well.

The next question comes from the line of Samik Chatterjee with JPMorgan.

I have 2. But maybe for the first one, you talked about the data center building block solutions and that it's still maybe a bit early for you to forecast gross margins on that front. But anything that you can help us in terms of what does a typical sales cycle? Or what are you expecting for a sales cycle on that front to look like? Have any of your larger data center customers shown interest in data center building lock solutions? I guess the question more is, when should we start to see or what should we expect in terms of material revenues in relation to when that does come into the P&L? What would be the earliest if you were sort of going and talking to your customers about these solutions now, what should be our expectation on this front? And I have a follow-up.

Yes. Thank you. Yes, we officially announced our data center building block solution last quarter. And now we have some product fully ready to ship. For example, AI computing power rack PMP that has been available for 4 years from Super Micro and kind of like CDU, right in though -- in-rack CDU and kind of like sidecar L2A, from liquid-to-air transformation kind of, for those customers who like to go for liquid cooling, but do not have a liquid cooling data center infrastructure ready, we support them sidecar and the product is ready to ship now, like a power shelf and when GB200, GB300 go for rack scale, I mean, use power shelf, we have a product ready now. And BBU, we have a product about ready now as well. And kind of like water tower for liquid cooling or dry tower, we are shipping now and kind of like on-site deployment and networking, including cabling, all kind of service. We have most of those components getting ready now. And we started in September quarter, right? And then we will ramp up in a much higher volume in December. And then for sure, we'll continue to grow in next year, March quarter and June quarter. So this data center building block solution eventually will have someone to build their AI factory infrastructure much quicker and much energy efficient and also save money. So we are very excited for our DCBBS solution.

Got it. Got it. And for my follow-up, you mentioned the investments that you're making on the enterprise opportunity or Edge opportunity as well. I mean, assuming some of those are better margin opportunities in the data center building blocks solutions related to your business currently on the sort of where you're around this 9%, 10% gross margin right now. Do you see an opportunity still to get back to the long-term targets that you had on the gross margin of 14% to 17%? Or like are those -- are these new opportunities necessary big enough and at a margin high enough to get you back to that 14% to 17% run rate? Or do you think the expectations for investors should be at a maybe a more modest level in terms of long-term gross margin range of the company would be in the future?

Yes. Very big question. And very good question also. I mean, yes, enterprise and IoT, as you know, have a much higher margin and DCBBS service software, we still have a better margin. So we are growing in both directions. One is growing revenue and support a large scale data center at the same time, growing enterprise data center total solutions, and software service. So I mean, long term, I believe, 15%, 16% still our target and take how long, it depends on the combination. So I believe, yes, the direction is still there. I mean we'd like to get back to our traditional 16%, even 17% post margin. Maybe you can add such.

Yes. I think that as Charles mentioned, we have been providing these services already. We've had customers with very large deployments that we've helped them in the build-out of their data center and with specific services. And so it's something that we're really focused on and we know that it will contribute to our profitability.

Yes. As a Silicon Valley-based company, for sure, we are able and we'd like to provide more value to customers, not just hardware, not just high-volume product, but even kind of service solution optimization and to make the customer's job much easier.

The next question is from the line of Michael Ng with Goldman Sachs.

I just have 2. First, on the greater than 10% customers for fiscal '25. I was wondering if you could just let us know what the revenue exposures were for those customers? I can appreciate we'll eventually get it in the 10-K, but any early color would be helpful. And then second, thank you for all the guidance on 2026. I was wondering if you could just talk about how we should think about gross margins for the full year? Is the first quarter gross margins that you spoke to, a good indication about how we should think about the full year?

Okay, Michael. So the 4 customers, which we'll refer to as A, B, C and D, not in that particular quarter, but 11%, [and 3; 11%] and a 21%. And as to your second question, we're not going to forecast annual guides, but I want to revert back to our earlier comments that we're doing everything that we can, especially we're very optimistic about these data center building block solutions. And we have -- we're very quick to market. We think those 2 combinations, DCBBS and our fast time to market is our best chances for margin improvement.

Yes, especially our DCBBS, we are able to have a customer increase or speed up their time to online, right, kind of traditionally, for example, 2 years, we have them improve to speed to 18 months, 16 months. So a lot of customers are very interested to those service.

The next question is from the line of Nehal Chokshi with Northland.

I have 2 questions. First one is, what is going to be the driver of the projected Q-over-Q 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.

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 AMI355X and GB300. And so we expect that to ramp in Q1. And that's really what's giving us our guide.

Yes. We are also gaining many more customers in Europe, Middle East and Asia now. So basically, the near future should be pretty strong.

And why with the incremental $1 billion of revenue, we won't see any operating margin leverage?

Well, whenever there is a -- in changing over to these new platform technologies, there's always a little bit of a ramp for us. And so that creates a little bit of a production learning curve.

Okay. And then my second question is that the data center building solutions, is that being pitched for as a discrete service where the value of that discrete service is fractional to GenAI factory? Or is it bundled in GenAI factory where it's going to drive a better margin profile for that GenAI factory?

It is support [indiscernible] scale of data center. That doesn't matter generative AI or agentic AI or application, right, invention. So it's a solution that we are defined pretty taste, pretty validate. So when you ship to customer, a customer can put it together easily. It's kind of like [indiscernible] They go castle, right? So kind of like it's validated in advance when customers receive easy to deploy and easy for quickly go for online.

So basically, it's the latter of the situations that I had proposed.

Yes, kind of including the computing power, the rack, the cooling, even the tower -- the water tower, dry tower, the battery system, the power module, right? So we have everything pretty built and validated in advance.

Yes. And as Charles mentioned, Nehal, the time delivery and time to online for our customers is critical because they have end customers that they're waiting for. So that's a huge selling point.

Yes. So is that center building block solutions at least going to be representative of 10% of the deals that, 10% of the deal value that you're going to be doing in the September quarter?

It will be stably growing. I hope very soon, it will be more than 20% or even more than 30%. Because so many people provide a system computing power, while we instead not just computing power, but total solution, a data center or a cloud total solution.

The next question is from the line of Brandon Nispel with [KeyCorp.]

I was hoping you could unpack gross margins during the quarter. Last quarter, you had provided some adjusted gross margins based on inventory reserves. Maybe you could help us understand whether there were any inventory reserves this quarter and if you're expecting any in 1Q, including maybe potential impact from tariffs.

Yes. Thanks, Brandon. So we did mention a little bit about that last quarter. And what I would say is that they came -- they did come in as expected. However, we believe that that's not going to be the case going forward. So we think that we're anticipating a stabilization in that area.

Yes, especially with our DCBBS and with our service function. So we have customers build a data center and make sure they go for online smoothly, and that will kind of make customers' business much more smooth. And those, I mean, it's good for our inventory control as well. That's our main best return product. So that will have less slow moving, less product write-down as well. Yes. But we expect we will improve in that area.

Yes. And Brandon, with respect to tariffs, the situation is dynamic, we're actively monitoring the tariff environment. We know there's news coming out next week. If we have any updates, we'll share it with you. But we can only watch and react as every other business is.

The next question is from the line of Quinn Bolton with Needham & Co.

This is [Shadi Mitwalli] on for Quinn. My first question is on the recent export licenses for NVIDIA and AMD. Just curious to see how Super Micro is positioned to potentially support these deployments? And does the guide embed any of these potential shipments?

Are you referring to H20?

Yes. H20, I believe that in the...

Yes, we're not anticipating selling those products at any quantities.

Yes, at least not in high volume for us, yes.

Got it. And then I have a follow-up, which is a clarification question from, I think, Northland. But did you say that the data center building block solutions will be around 20% to 30% of total revenue in the September quarter?

No. I mean that will be further away, maybe next year summer. So it will ramp up gradually, not immediately.

The next question is from the line of John Tanwanteng with CJS Securities.

First one, just on the data center building block solutions. I was just wondering what the gross margin profile looks like they're compared to the corporate average and what an incremental dollar of sales in that kind of solution adds to your gross profit?

Very good, data center building block solutions, I believe we are the first one. So we are the first company to introduce data center total solution with building block feature, so the profit margin, the value to customer for sure both are good. Much better than the commodity product when you had to compete with company. That's the pressure for healthy margin, right? But data center building block solutions instead, we have much less competition.

Okay. Great. That's helpful. And then just on the B300 launch, do you expect to see yourself distancing yourself from competitors, both pricing-wise and allocation-wise, when that reaches volume? Or is there any reason to believe that you may see more of what you're seeing in the B100 and B200 time frames?

We work with our vendor very closely, right? And so I believe our position will be second to none. So for sure, will be a good chance once it's available from our vendor, we are very happy to promote quickly.

The last question is from the line of Vijay Rakesh with Mizuho.

Just a quick question on this -- on the $33 billion guide for fiscal '26, wondering what is contemplated in terms of revenues from the DataVolt win that you announced?

We don't make a comment for a specific customer, but we do have a growing customer base in Europe and in Middle East. So we feel excited to grow business in the territory, Middle East, [indiscernible] And I believe it will be a good percentage for Super Micro business to grow.

Got it. And then on the DCBBS, obviously, a nice move with the racks and enabling your go-to-market timing, I guess. Just wondering what would be the split of a full NVL72 rack versus HGX that you're shipping now? Or into end of the year in the fiscal '26, I guess?

Yes, we started to ship something about now, kind of like, for example, the liquid-to-air sidecar, we are shipping now. And CDU, we have been shipping for a while, right, including in [indiscernible] CDU, we are shipping now and BBU, we will start shipping very soon, and power shelf, we are ready to ship at this quarter. And so a lot of parts, we've been shipping for a few months or ready to ship in volume and some others will be ready in the next few months or few quarters. So eventually, it will be really a big product line. The goal is to support all the major components for customers to build their data centers, their AI factory. So kind of to offer a one-stop shop. One-stop shop, not just to save customer time, but to make sure when customers put those components together, it work and optimize for both efficiency, quality and cost.

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