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

It's still good morning, everybody. Welcome to the KeyBanc Technology Leadership Forum. My name is Brandon Nispel. I cover IT hardware among many other sectors for KeyBanc. Thanks all for being here. This is a 25-minute fireside chat. We have Michael Staiger, Senior Vice President of Corporate Development with Super Micro. Michael, thank you for being here.

Hey, thanks for having us. Thank you to KeyBanc, and thank you for your coverage. I just want to like highlight. Please refer to our website regarding cautionary statements, regarding forward-looking statements, the standard legal disclaimer.

Well done. Let's just start. You guys reported earnings last week. Why don't you give us a quick recap of the fourth quarter?

Well, I mean, without getting into too many details, we think we had a pretty good quarter. We're within range. We grew -- for the full year, we grew 47%. We have lots of new customers coming into the fold. We talked about where we grew one customer to scale customer in '24, four in '25, and we expect to add two to four more in fiscal '26.

Got it. One of the things that's come up, and I think it's sort of unclear what exactly is, but a lot of answers to the questions was around Datacenter Building Block Solutions, right? Can you help us understand what that is for Super Micro?

Yes. From that perspective, you really have to take a look at what's going on in the industry, what's happening. AI is obviously on everyone's minds. Everyone's hearing about hyperscaler CapEx, and hyperscalers are like building out like crazy, building out like mad. We have a whole host of customers that are following suit neocloud, sovereigns and enterprises, right? So from that perspective, the hyperscalers have the manpower, the staff internally to develop systems across the -- for the full scale to offer these services. Many customers don't have that capability. So we're moving beyond just supplying the system or the rack to the customer to the full suite of solutions for the customer so that they can get up and running in fast time, so they can offer the services to those customers. And those customers on the DCBBS, whether it's retrofitting air cooled to liquid for a data center that might not be ready and adding different componentry, different services, integration services, support, cabling and get full suites because those customers don't have those capabilities. And we're providing them for them as opposed to just being in a competitive situation where it's rack to rack, where there's a lot of noise on that front where some of the larger customers are just trying to build as fast as they can, get me as many racks as you can. And like I said, these are the customers like, can you please help us get those racks on the floor?

You sort of alluded to it, but how does this different sort of change how you guys operate and do business? Is this a big strategic lift? Or is it sort of a little bit more simple from an operational standpoint?

I wouldn't call it a big lift. What I would call it is that we've always been focused on performance, density, systems design, engineering, et cetera, and getting the best -- lowest cost per compute, per watt for a customer. It just happens to be in our DNA, so innovating on a platform. And as we move forward, these platforms are getting more complicated. So our ability to innovate and scale those innovations is starting to expand, is expanding. And so from a competitive perspective, our focus is innovation. So we're a serial innovator. So if you think forward, what will things look like. There's some announcements today about the RTX 6000 for inference, right? So the market is focused on the AI platforms, like language models are getting built out. Like if you think about the context windows, they're too small, right? So as they expand, the training models are going to get bigger. But at the same time, you'll have more users on the inferencing side. So we look at it in a holistic approach where we will deliver the best, most complete training platform, if you want to call it, with our partners. And at the same time, we'll have innovation that goes around that on the inferencing side. So we have a full set of solutions for the customer to optimize for the application. Those applications are starting to expand in use. And we heard this morning at your conference, a couple of users where one or two could peg one of the services by running a couple of models. Like that much capacity by one user like gives you an idea that the core AI systems are not built out yet or the training models aren't built out yet. There's a whole ecosystem, and we're focused on building that ecosystem.

Can you talk about sort of the higher value-add services within -- what is it? DB...

DCBBS.

DCBBS. Thank you. Like software services, how do you sort of implement more higher value-added services? And then talk, we've been there, how you expect that to translate into like gross margins, profitability for you guys?

So from our perspective, like I said, as we look at a customer and the customer is focused on trying to get up and running, we are trying to put together the pieces that they need so that they can -- don't have to rely on multiple vendors to bring that data center up. So it's a complete suite for the data center. In many instances, we're working with other ISVs like take storage, for example, and we'll do a special purpose-built back end, whether it's flash-based or a disk-based storage system with the partner. And if we can deliver that at the same time with the platform itself, along with some of the cooling elements, whether it's a sidecar, whether it's the rear door heat exchange, et cetera. Whatever that customer needs, we'll put that on the floor for them in record time and encapsulate services on that, so ongoing support. So when we do that, we won't be in a position where it's rack for rack pricing competition. So that will lift our margins up to the ranges that we talked about in the longer term.

Got it. Let's talk about revenue growth. Super Micro has been I think an industry leader, outpacing the industry from a growth standpoint. Just help us unpack sort of where you think you are from a market share standpoint, how you've grown over the years and ultimately taken market share.

So if you look at the historical element there, about $3.5 billion in '21 to $5.2 billion to $7.2 billion to $15 billion to $22 billion, and then we guided to $33 billion. Clearly, there's something there that is a huge value. Like the growth rates are strong because we're innovating for the customers. We're delivering the best platform for those customers, and we're giving the best cost per compute per watt. And then the extension of that will be to wrap around not just the core of that, but we'll wrap around more product into that and continue to expand our growth. We feel like we're at early stages. And on a comparative basis, what we're doing is innovation as opposed to like can you just deliver a rack to us, and people are trying to be fast followers. Those innovations and the generations in our partners' product sets, which keep changing year-to-year. We're staying in pace with that. We have the capability of delivering it. We design -- we do the design, we do the engineering, we do the manufacturing. All these are in-house. We control all these elements, right? So we're able to flex faster. Not only that, but the learnings from the prior platform will bring them to the next platform. And so people are focused on the reference architectures from our partners, but we're focused on not just the reference architecture, making that work the best, but we're focused on the reference architecture, how can we take the reference architecture and advance it, so it benefits our customer, so that we have a differentiated product, so that we carry that product forward. So it's kind of right now, we're in a land and expand kind of mode, and we've proven our metal. And by the fact that we've had large-scale customers that are relying on us for very important builds as we move forward, the enterprises and the smaller customers like, wait a minute, Super Micro has these capabilities, and I know some of the other players out there aren't innovating. So I can get the best solution and the best for the application that I want to deploy, so I get the best bang for my buck and deliver to my end customers. So we're trying to help our customers do that, and it all comes around serial innovation, being at the forefront and controlling all these elements and keeping them in-house. So I think if you look at it that way and you look long term, we could potentially be like the largest supplier in the industry, and that's the long-term goal of our CEO, Founder.

Got it. You alluded to it, the company recently guided to greater than $33 billion in revenue in fiscal '26. It's over a 50% growth rate, an acceleration year-over-year. Can you help us understand sort of what you guys are seeing and what data points you can share that can help us get some confidence in that growth reacceleration?

So I think the historical pattern of what we've done is like should give people confidence that like the growth is there, right? The second element of that is if we had one scale customer in '24, now we have four in '25. We said that there would be -- we expect those customers to grow with us into '26, and two to four more would come into the fold at least in 2026. So that gives you the framework of like the expanse of what we're doing. So that's a pretty good understanding without being like Wall Street specific of like who, what, why and when. So we feel pretty confident that at least $33 billion is a great number and an indication of what we're growing.

So help me bridge from a modeling standpoint because you also guided to your fiscal first quarter '26, this is about 10% growth at the midpoint. Is this a steer function higher throughout the year? Should we just step it up right away in 2Q? How do you want to just think about like that?

So we didn't provide any specific linearity with respect to like how the Street would model the '26. What I can say is that with new customers coming into the fold, with the fact that we have neoclouds that are more, that are emerging, the fact that sovereigns are emerging, those builds and then parse that back with supply, timing, bill, et cetera. If they all come in at the same time, the numbers could move faster. So it's a timing element. And so when we think about our business, obviously, we have to guide to the quarters from a Street perspective, but we really think about it in terms of like long term and the visibility that we have with the markets. And so at least $33 billion. So how that works out remains to be seen. You've seen variance in the quarter-to-quarter. Larger customers have a greater impact on things moving around. We talked about where we had a new scale customer or potential scale customer come back to us and say, "Hey, look, we need to re-architect this design to fit this one particular data center", which kind of altered the flow of revenues in the prior quarter. So those things can flex the business model, makes it a little bit of a challenge. But if you think more along the lines of like where is the long-term direction going of, one, the industry; two, the fact that we're like the leading technology innovators in that industry, where we will be in '26, '27, '28 is going to be in a different place than it is today. I think it will be a much, much larger.

Sovereign seems like maybe the biggest incremental opportunity because you have some neoclouds as customers today. How do you sort of characterize what the demand outlook or opportunity is around sovereign? And you did announce a deal for up to $20 billion for DataVolt. Help us understand sort of what the sovereign opportunity is.

Well, as we've indicated in the past, we had numerous entities approaching us. So if you think about that customer set and what they're trying to do intercountry to leverage AI to be more efficient, whether it's at the government level or through their -- whatever industries they own, whether it's telecom, they've been coming to us. And when they take a look at Super Micro, they're not looking at Super Micro like how many racks can you give me today, right? They're looking at us and saying, "Hey, can you carry me through the product transitions that we've heard about into the future and support us? And can you help us set up and architect the data center, which rolls back to the DCBBS." And these customers also as well are fairly well funded as being government entities, right? So it's a little bit of a deeper partnership. We've seen -- we have business in some of these particular pockets, and we expect some of those to turn on to be much larger. So it's an opportunity set that our partners are talking about. We're in the process of realizing those opportunities and developing products around to really help them out, which rolls back to DCBBS. There'll be more product elements to DCBBS that will be announced later on in the year. So I think it's all coming to -- coming together, and it looks pretty promising from our perspective, which rolls us back to -- we think that in the two to four additional large-scale customers, it's likely that there will be a sovereign entity in that element.

And that should build over time outside of fiscal '26 into '27 and '28 as other sovereigns sort of develop their AI strategies?