Good day and thank you for standing by. Welcome to the Super Micro 4th Quarter and Full Year Fiscal 2021 Earnings Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer Thank you. I would now like to hand the conference over to Nicole Mischos, Investor Relations.
Please go ahead.
Good afternoon and thank you for attending Super Micro's call to discuss financial results for the Q4 full year fiscal 2021, which ended June 30, 2021. By now, you should have received a copy of the news release from the company that was distributed at the close of the regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation press available to participants in the highlights of the company's website in the Events and Presentations tab. We've also published management's scripted commentary on our website. Please note that some of the information you 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 the potential impact of COVID-nineteen in the company's business results of operations.
There are a number
of risk factors that can cause Supermicro's future results to differ materially from our expectations. We'll learn more about these risks in the press release issued earlier this afternoon and most recent 10 ks filing for fiscal 2020 and our other SEC filings. All these documents are available on the IR section of Super Micro's website. We see 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 Day. In addition, a reconciliation of GAAP to non GAAP results 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 have a Q and A session for the sell side analysts to ask questions. And now I'll turn the call over to Charles Yang, Founder, Chairman and CEO. Charles?
Thank you, Nicole, and good afternoon, everyone. I'm pleased to announce that for the first time, our quarterly revenue had exceeded $1,000,000,000 For fiscal Q4 2021, we delivered year over year revenue growth of 19.3%. For the whole fiscal year 2021, our revenue grew 6.5%. We have gained March share and finally resumed faster growth starting for March quarter this year after the impact from past 10 ks today and COVID-nineteen challenges. The revenue growth was driven by some wins from a large enterprise customer and large multinational high-tech companies.
These customers choose Supermicro Because of our green computing technology, faster time to market and product and play total IT solutions, especially in appliance, cloud, AI and 5 gs markets. Now let's look at some key highlights from the quarter. Our fiscal first quarter Net sales totaled RMB1.07 billion, up 19.3%, both year over year and Quarter over quarter, at the top end of our guidance range. This growth rate, I believe, is much higher than that OLED industry. All our major geographies contributed double digit year over year quarterly growth.
Our fiscal 4th quarter non GAAP earnings per share was $0.81 up from $0.68 same period last year. We saw a significant increase in sales from new and existing large Our strong momentum is mainly driven by our business expansion From hardware solution to total IT solution that consists of hardware, software and service. We have doubled our software engineering resource in the past 24 months to allow us to swiftly execute this plan through engagement and close collaboration with Strategic leading hardware and software partners, we have provided our customers more optimized, tested, certified and ready to deploy reference architectures. As a result, large volume order Our deployed timely without customers having to go through complicated process of hardware validation, software compatibility And supply chain disruption is a win win for everyone. Earlier in fiscal Q4, we successfully executed the launch of Intel ISV, AMD mini 9 and NVIDIA A100 GPU based product lines and began to ship more than 2 100 application optimized They are all based on the strong foundation of our server building product solution.
This optimized system are created in house, leveraging close to 3 decades Our subsystem innovations, including measurable enclosure, power supplies and cooling technologies. What's more, our security and management software empower customers To deploy, manage and scale in a timely manner from enterprise to hyperscale. On the product side, our new Ice Lake based X12 generation multiple node solutions against great traction among customers who are looking to scale out their enterprise and cloud data centers. In the upcoming All these resource saving product lines support dense NVMe and often persistent memory, Flexible GPU and LPGA configurations, providing optimized performance and a base of the TCO to a variety of customer workloads. Our GPU product lines are continuing their strong growth With the explosion of AI machine learning application demands, this new iStack and support larger on GPU memory and Accelerated compute intensive applications.
Our 2U2Now GPU system have proven to be a top Thanks to its optimal mix of CPU to GPU ratio and resource saving features. Later this year, we will be introducing a brand new universal GPU product line that will provide even more Flexible collaboration for many different CPU and GPU module combination further push the limit of system density And performance up to 50% when compared to competition. Announced in June during Computex 2021. Our Platinum Play Airc 4.9 is an integral part of our complete solution strategy going forward. These turnkey racks have built securely for our AI, 5 gs telco, enterprise, cloud and storage customers.
Upon receiving these total IP solutions, customer only need to connect power and networking. Then they are immediately ready to run their applications, shorten the time from making decisions to begin results. To further improve sales and operation efficiency, We will launch our auto calculator tool to enable B2B, B2C automation, which will be Broadly ready to service our customers in the coming few weeks. This tool makes it faster to achieve Product optimization and more efficiently to leverage the configurations among our sales, We recently complete Our Taiwan campus expansion. Now with the total 3,000,000 square feet campus in Taiwan, We are equipped to deliver not only sufficient capacity, supply chain resilience, but also lower cost structure Combined with the manufacturing facility in Silicon Valley and Netherlands, Super Micro is well positioned to grow market share With economic scale, agility, quality and rapid delivery time To satisfy our customers' faster growing demands, we are working aggressively across our global supply chain to In summary, Supermicro has been solidly transforming Into a total IT solution company from a server hardware company.
In addition to providing the greenest hardware total solution, Our software and service products are now ready for large enterprise, cloud, AI and telco customers. 2nd, our Tevaan campus expansion doubles our solution capacity and lowers our cost structure. Now if we decide to do so, we can start to reduce our expense in Silicon Valley headquarter, if we select 2 by me. 3rd, our business automation program, including our auto commulator and B2B, B2C systems, We have significantly improved customer experience by streamline customer's translation and order process, resulting in short term solution delivery time with better quality and optimization. With the above summary, I believe our fiscal year 2022 revenue will reach at least $4,300,000,000 and start to grow much faster than our past 4 years.
In closing, I'm pleased with the progress of our business transformation, which has started to speed up our business execution in fiscal 2021. As a total IT solution company, We are now able to grow business much more efficiently and achieve our $10,000,000,000 revenue growth quicker. Perhaps We are able to pull in from 2026 to 2025 or even sooner. With that, I will now pass the call to David Wagan, our Chief Financial Officer, to provide additional details
Thank you, Charles. We continue to accelerate in all major areas of the company and exceeded $1,000,000,000 in revenue for the quarter, which was at the high end of our guidance range. Growth was driven by Wins from large enterprise customers and key high-tech companies worldwide, continued strength across all major geographies and solid demand for our products and services. Our fiscal 4th quarter revenue totaled $1,070,000,000 reflecting a 19% increase both on a year on year and quarter on quarter basis. Looking at Supermicro's Q4 revenue in our 3 part verticals, we achieved $672,000,000 in the organic enterprise and channel AI and machine learning vertical, 366,000,000 in OEM and large data center vertical and $3,000,000 in the 5 gs telco and IoT vertical.
Systems comprised 78% of total revenue and the volume of systems shipped was up year over year, while the notes shipped were down year over year. System ASPs increased year over year and quarter on quarter. Performance was strong across all major geographies this quarter. On a year on year basis, Asia increased 25%, U. S.
Increased 21% and Europe increased 13%, while the rest of the world decreased 3%. On a sequential basis, U. S. Sales increased 30%, Europe increased 14%, Asia decreased 1% and the rest of the world increased 7%. From this point forward, unless otherwise noted, I will be discussing financial metrics On a non GAAP basis, working down the P and L, the Q4 gross margin was 13.7%, was down 3 basis points year on year and 10 basis points quarter on quarter.
We expected our Q4 gross margin to improve 70 basis points, primarily due to the costs incurred in Q3. I'd expect Those costs did not repeat in Q4. However, expedite fees and higher shipping costs by 50 basis points quarter over quarter. As reported by many other companies around the world, supply chain pressures related to the resurgence of variance of COVID-nineteen persist. Turning to operating expenses.
Q4 OpEx on a GAAP basis was essentially flat quarter on quarter and decreased 7% year on year to $106,000,000 The decrease year on year was caused by a decrease and incentive bonuses, offset by higher headcount this year, which was primarily in R and D. On a non GAAP basis, operating expenses increased 4% quarter on quarter and increased 9% year on year to $99,000,000 The quarter on quarter and year on year increases were related to headcount and other personnel costs as we continue to invest in human capital to address our growth opportunities. Other income and expenses included interest expense, which was a $2,100,000 loss as compared to a $1,400,000 gain last quarter. The sequential change is mostly related to FX. This quarter, our tax benefit was $1,600,000 on a GAAP basis and an expense of $1,800,000 on a non GAAP basis.
Our non GAAP tax rate was 4% for the quarter. Lastly, our share of income from our JV was $600,000 this quarter as compared to a loss of $23,000,000 q4 non GAAP diluted earnings per share totaled $0.81 as compared to $0.50 in Q3 of fiscal 'twenty one and $0.68 in the same quarter of last year. Cash flow from operations totaled $64,000,000 compared to cash flow used in operations of $124,000,000 in Q3. CapEx totaled 13,000,000 which is also a low of $50,000,000 Key uses of cash during the quarter included increases to inventory and receivables, while key providers of cash included an increase of $144,000,000 in accounts payable and $12,000,000 in deferred revenues. The increase in deferred revenue was due to higher sales of our service contracts.
We also used $12,000,000 purchase shares this quarter. Our closing balance sheet cash position was $232,000,000 while bank debt was $98,000,000 resulting in a net cash balance of $134,000,000 Turning to the balance sheet and working capital metrics compared to last quarter. Our Q4 cash conversion cycle was 80 days, which was down from 86 in Q3, beating our target range of 85 to 90 days. While the absolute level of our inventory Days of inventory at 96 days decreased. Days sales outstanding was 37 days, while days payables outstanding totaled 53 days.
Now turning to the outlook for our business. We expect net sales in a range of $900,000,000 to $980,000,000 GAAP which is GAAP diluted net which results in GAAP Diluted net income per share of between $0.16 $0.36 and non GAAP diluted net income per share of $0.28 to $0.48 for the Q1 of fiscal year 'twenty two, which ends September 30, 2021. We expect gross margins to remain at similar levels sequentially in Q1 with upside potential as we continue to manage supply chain costs and maintain price discipline. Over the coming over the upcoming quarters, we expect to achieve margins within our target model as we further scale out our Taiwan operations and begin to gain traction from our new product offerings and auto configurator B2B and B2C solutions. GAAP operating expenses are forecast Approximately $110,000,000 and includes $7,000,000 in stock based compensation expenses and $1,000,000 in other expenses not and non GAAP operating expenses.
We expect other income and expense, including interest expense, to total roughly $2,000,000 and expect a nominal contribution from our JV. Non GAAP operating expenses are forecasted to be up quarter on quarter from continued investment in R and D, lower NRE expected and higher personnel costs. The company's projections for GAAP and non GAAP diluted net income per share both assume a tax rate of approximately 16% and a fully diluted share count of 53,700,000 shares for GAAP and 55,000,000 shares for non GAAP. The outlook for Q1 of fiscal year 'twenty two GAAP diluted net income per common share includes approximately $8,000,000 in expected stock based compensation and other expenses, net of taxes, that are Excluded from non GAAP diluted net income per common share. We expect net sales In a range of $4,100,000,000 to $4,500,000,000 GAAP diluted net income per share of at least $2.60 and non GAAP diluted net income per share of at least $3 for fiscal year 'twenty two, which ends June 30, 2022.
The company's projections for GAAP and non GAAP diluted net income per share for GAAP and 56,500,000 shares for non GAAP. The outlook for fiscal year 'twenty two GAAP diluted net income per share includes approximately $30,000,000 in expected stock based compensation and other expenses, net of taxes that are excluded from GAAP diluted net income per common share. We expect CapEx For the fiscal Q1 of 2022 of approximately $14,000,000 to $16,000,000 Nicole, I'll turn it back to you for Q and A.
Operator, you can open the line up for questions.
Thank you. Your first question comes from the line of Mehdi Hosseini meeting with SIG. Your line is open.
Yes, thanks for taking the question. I have a couple of follow ups. If I were to take the midpoint of guide range for fiscal year 2022, it seems like Maybe there is a little bit of leverage in operating profit. In other words, maybe 200 Basis point of improvement to get to $3 of earnings. What I want to understand is what are the key assumptions Or component costs, is this a base case or very conservative case?
And I have a follow-up to that.
I would rather say it's based on conservative base Because supply chain continues to be very tight. And although we have a good relationship with All of our supplier, but anyway, it's a global strategy program. So it's a conservative base. Because our operation now is able to dramatically Expanded to Taiwan. So that will lower our overall cost.
Right. So where is the most what segment of the supply chain you're experiencing the most Shortage, what are the key components that you relatively have the most difficult time procuring?
IC chip, Especially IO
and Chip.
Okay. And Question on the cash flow, what was the depreciation and amortization for the reported June quarter and what should we assume for fiscal year 2022?
So I'll have to get back to you, Marianne.
Okay. Given
the CapEx growth in fiscal year 2021, almost 60,000,000 And the build out of the Taiwan facility, should we expect CapEx to moderate from here?
Absolutely.
Yes, because our Taiwan operation is pretty much ready. We added about 2 in Taiwan in the last 12 months. And all the people have been well trained and they just moved into the new building last month. Other than that, our feed in automation, as we just mentioned, for B2B, B2C and auto configurator, We hire people and train people and they are about already and start to offer service to certain customer And we will broadly apply to all our customers in next few weeks.
Okay, great.
I'll get back to you.
So I'll get back to you.
So the investment has been there.
So Charles, are you inclined that the CapEx should decline in fiscal year 2022?
Maybe Because we are growing, right? I mean, 2022, 2023, 2024, we expect continue to grow. So I guess the operation It won't shrink, but may grow very kind of consistent, very limited growth because we already invested there.
Okay. All right. Thank you. I'll get back into queue. Thank you.
Your next question comes from Nehal Qiu with Northland.
Congratulations on Strong results, especially in free cash flow. We were expecting a drain based on this commentary from last quarter and generated very nice Free cash flow. It looks like the big delta relative to our expectations was increasing days payable. And given this environment of a constrained component environment, I mean, how was this pulled off basically?
So now we did A lot of inventory that came in at the near the end of the quarter. And so that's what caused accounts payable To rise and with a resultant rise in the DPO.
Okay. Now I consider it positive to keep kind of a high inventory Because we strongly believe a customer needs those products.
And so by the yes.
Go ahead, sorry, please.
I was
going to say, you can tell from our forecast, from our revenue forecast that Our sales are not tipping as they traditionally do in Q1. And so therefore, we needed to have more inventory on hand, Which was why I alluded to the challenges of cash flow for this projecting cash flow for Q4, But we ended up in a good position.
I see. So I guess because we built up the inventory at the end of the quarter to satisfy So the strong demand you're seeing in the September quarter and the balance sheet is showing up as increased days payable. So what you're saying is that your base payable terms actually didn't increase, it's just simply the timing of which you received the inventory?
That's exactly right.
Got it. Okay, understood. Okay. And I don't recall the last time you guys gave full year guidance. I'm not sure if you ever had before, but certainly I don't think you did during Fiscal year 2021 or fiscal 2020 or past few years, 1 year in 10 ks filing delay held.
So what has change to give you visibility guide on the full year basis? And importantly, almost 10% about the consensus estimate?
Not much reason, but pretty much because we have a successful expansion in Taiwan and also Business Automation, Including auto simulator and B2B, B2C tour and also company expanding from a hardware solution company to Total IT solution company. So we saw it's a good idea to offer the market kind of more completed picture For the whole year and in the future.
Okay. All right.
And in this midpoint 20% growth guidance Fiscal 2022, is this tied to any sort of industry growth expectation?
I'm sorry, what was the last part of your question? Is it tied to what?
Is it tied to server industry growth, Any sort of server industry growth expectation or is it independent of server industry growth?
Not quite. Not quite. As we mentioned, We had returned to a faster growth business model. If you remember before 2017, Before the 10 ks delay, our growth always have been 2 times to 4 times faster than the industry. And we believe we are returned to that faster growth being this model now.
So start from March June last quarter, We start to outperform the industry. And I believe we will start to outperform the industry growth rate, Maybe double or triple or even more looking for both. So we are gaining much share in the other world.
Yes, undoubtedly, clearly. But is there a particular industry growth rate that you are Expecting in order to drive that 20% year over year, I. E. 5%, 10%, 2%,
We believe that industry may grow 5% to 10%, right? And our growth rate should be double to quadruple of that hopefully.
Okay, great. And then my final question is that the minimum $3 per share, does that correspond to low end of the revenue guidance Or to the midpoint of revenue guidance?
I would rather say it's a conservative number.
Okay, great. Thank you. I'll cede the floor.
Thank you.
Your next question comes from the line of Ananda Baruah with Loop Capital. Your line is open.
Hey, good afternoon, guys. Thanks for taking the question. And congratulations on the Strong revenue execution and the visibility to put out a long term or a fiscal year rev guide there. I guess a couple for me if I could. David, Could you just walk back through the components that you spoke to on gross margin?
I just want to make sure that I'm straight on those. And then I have a quick follow-up as well.
Certainly. So when we finished last quarter At 13.8%, we had some about 70 basis points of discrete costs and which included Some shipping costs as well, but mainly it was principally discrete some discrete costs that we didn't expect to occur. So this quarter, Those did not occur, but we did have 50 basis points more of shipping costs. And it was really caused by our directed effort to deliver product to our customers on time And because that's what our customers expect and demand. So that's really the reason that we were not able to raise margin up higher Just because the
Yes.
Yes, yes. Got it. Cool. And so If you lost the 70, so that took you to 13.1, and then I got it. And then you sorry, you lost 70 And when you gave 70, so that would take you to 14.5 or so.
And then you had 50 more, so that took you That was just taking it back down to 14%. And then was there I think I'm doing that math right, correct me if I'm wrong. And then was there an incremental 30 basis point headwind that brought it down to the 13.7?
Well, there was. We had 2 things. 1, we had deferred revenue that we added To a balance sheet of about $12,000,000 So we had to carve out some income for our services. And we also had just the rest was just product That's a mix, Ananda.
Got it. Okay. And then Like how should we what are the sort of the pushes and the pulls? You made mention in the prepared remarks that Do you expect in the coming quarters to move up into the 14% to 17% range? What are the pushes and pulls there?
And If there's any way to give them by order of magnitude, that would be helpful also.
Sure, absolutely. So We realized that with the delta variant, it's hard to say that the COVID is over. And so therefore, we expect to continue to have challenges on Supply chain shipping costs. However, we do expect our other initiatives, such as our transition over to Taiwan and our new product offerings, especially in those verticals That have attractive more attractive gross margins as well as our B2B and B2C configurator. We expect the benefit of those things to start to come to the business in the upcoming quarters.
So in the short run, We know that Taiwan has gone online. However, it's going to take a couple of quarters to start to realize benefits.
Any could we Jim, I'm not the only one sort of intrigued about this. Any chance for you to get you to Give us some sense of for fiscal 2022 what the gross margin could look like?
So we've given guidance on the top line and the bottom line, but we're not going other than the fact that we That gross margins to improve, we're not giving further guidance.
I got it. But it's not unreasonable to think that you would be In the range by the end of the year, end of fiscal 2020.
Yes, our target is To go and I think this is in the notes, our target is to be back within our range by during the year. Our range, by the way, was 14% to 17%,
Yes. Appreciate it. I'll get back in the queue here. I appreciate it. That's really helpful.
Thanks.
Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is open.
Yes. Hey, guys. Thanks for taking the questions and congrats on the quarter. I'm just curious as the industry, not just you guys, but the industry in whole Deals with supply chain shortages, semiconductor IC shortages, etcetera. I'm curious on your side of Have you been able to invoke your own customers to provide you with extended lead times?
And has that provided you with better visibility? And then on the heels of that kind of tied to that question is, is the guidance for this current quarter assuming That you would have actually outperformed that number if you weren't able to get all of that all of the supply To meet demand? Put another way, are you able to meet demand as you see it in the current quarter?
Very good question. Again, Although we tried whatever possible we could, but still we cannot get whatever we want. So we cannot ship all the demand to our customer. I would like to say we can ship most of that. Maybe Customer still had to wait longer than regular time.
And the good thing is we have a lot of repeat customer, All the customers. So they understand the global difficulty. So longer lead time, yes, People don't like to see that, but basically they are cooperative. So we cannot ship whatever customer needs, But basically customer are happy with our base for service.
And what is your current view of expectations of when that normalizes? Do you does your fiscal 'twenty two guidance reflect the view that The tightness in the semiconductor supply chain starts to normalize through this fiscal year or do you think it's out further than that? Just curious of what your thoughts are.
Yes. I mean, as I shared before and now, Traditionally, our growth rate was double to quadruple, faster than the industry. And I believe we already get back to that momentum, Double to quite people faster than the industry. But because of the global shortage, that impact our growth a little bit for sure. And that's why we are humble to say maybe $4,300,000,000 Even now because of big shortage globally, I I believe our growth will be much better than that.
Yes. And then the final quick question is, there's a lot of Structural things going on in the server and the universe around semiconductors and so on. I'm curious of how What kind of growth that you're seeing in GPU accelerated server platforms? And do you think that there's a longer term narrative that we're at the point where The richness of the server configurations can really drive a positive upward trend in blended ASP for Forseeable future, I'm just curious to how you're seeing compute architectures evolve that maybe benefits you guys from a growth perspective.
Yes. You know, as a technology company based on Silicon Valley, we like a technical challenge. We like new technology. That's why lots of different CPU, lots of different GPU, lots of different platform, not a big change to us. And that's why I just mentioned we will introduce Grand Twin, a brand new architecture to the market very soon.
And we also are designing a universal GPU platform and that will be ready by end of this year. So all of those is to provide a much more flexible kind of to support multiple Different CPUs, mender, multi pro, different GPU mender and different form factor. So all our platform in India will benefit our And thank you to our built in bulk solution. We are able to kind of skillfully Kind of optimize the OLED configuration by our new architecture and especially grand twin and Kind of universal GPU solution. So we are very happy, very excited to see the opportunity.
That's great. Thank you very much.
Thank you. Your next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open.
Hi, good afternoon guys and great quarter and also the outlook is pretty impressive. I wanted to drill down on a previous question just question. How you have confidence in that $4,300,000,000 in revenue? Is that a bottoms up analysis with like qualified customer leads, indications of interest, Contracts that may have already been signed? Or is there more orders that you actually have to go out and get before you can achieve that?
I'm wondering how you built to that.
It's both bottom up and top down. On both direction, we see the growth will be very strong. Again, even now because of global shortage, our growth should be much better than that. And with better product, With our Taiwan operation, we also are many more new engaged High profile customer, we achieved in the last 6 months and currently. So we feel pretty optimistic of that.
Okay, great. And I was going to ask, how do you feel about your ability to pass price through in this environment? You talked about expedited shipping. I know that you were doing air freight last quarter, just to get things to customers on time. I would think that everyone knows at At this point that it's impossible to get things without paying for extra shipping charges.
So I'm wondering if you're planning on surcharges or other pricing methods To be able to pass that through to the customer, then if so, are they receptive to it?
Very good question and complicated question too. So we try wherever possible to communicate to customer, but overall, we have to ourselves, I would like to say at least 50% of that, while maybe test 50% to customer. So we try to kind of Provide the customer a very competitive way so that we can grow market share as well.
Okay, great. Maybe just one final one on pricing. When do you think you can catch up on pricing to the higher input costs? Is it A quarter or is it 2? How should we think of the lag time before you're able to absorb all of that?
Again, it's a complicated question because of the pandemic data variance still going on. So but Once the COVID-nineteen end, I believe we will recover to normal. But before that, we are getting able to pass Those overhead extra close to customer. Likewise, there may be fifty-fifty in last quarter, and we'll be getting better, but hopefully, COVID-nineteen program can be end very soon. So we will get back to normal automatically.
Okay, great. Thank you and congrats again.
Thank you.
Your next question comes from the line of John Lopez with Vertical Group. Your line is open.
Thanks very much. Can you hear me all right? Yes. Sorry, that's great. I had some trouble.
Sorry about that. Thanks, David. So I could say it's 2. I wanted to come back for a second to the fiscal Q1 guidance and maybe to come at it this way. I thought In some remarks you made, you referenced like not declining in fiscal Q1.
But I guess as we calculate it, it's actually a bit below your normal seasonal trending pattern. And that's after being pretty comfortably above that Pattern in the last two quarters, so both fiscal Q3 and fiscal Q4. So I guess my questions are, 1, are we looking at those numbers differently than you are? Maybe just Step me through what you meant when you said not declining. And then 2, is there any constraint on your revenue guidance relative The component for logistical issues, perhaps if you quantify that?
Thanks.
Sure. I think that I think what our range does is our range allows for the struggles that we face In the supply chain. So therefore, we feel like we provided a broad enough range that We can overachieve and we can also but we feel comfortable with that range.
I guess one the other factor is that because last year COVID-nineteen reason, we did not adjust the employee salary That much. So this year, we have a much bigger salary adjustment for employee. That's why you see Q1 and Q2, you may see our expenses grow. 1 of the big portion because of salary adjustment. And also Taiwan expansion.
So we hire people in Taiwan and train people, but they will be ready to a contributor to our revenue and profit very soon.
Okay, thanks. Yes, I guess that helps a bit. I guess my other question just to come back to the gross margin for a second. So To arrive at this $3 figure or north of $3 figure, especially based on what you're referencing OpEx there, Charles, I mean, the gross margin does need, I think to be pretty close to 15% as we get out of calendar Q3 and into the remainder of your fiscal year. I guess, why do you think like do any of these things feel as though you have line of sight to them ending as we look beyond calendar Q3?
And if not, are you committing that you get the $3 some other way, like will you rein back on OpEx or just maybe walk us through the interplay between Why you might have comfort in the $3 number if you don't have visibility to some of these logistical issues or cost issues abating?
David, how about you start?
Sure. So one of the things that helps our cost structure again is It's the movement of our production over to Taiwan. So that's we expect that to give us benefit As well as the traction in our new product offerings, which we expect to bring Higher margins than the traditional server business. So those are the factors that we have insight into And give us confidence that in spite of supply chain challenges, which we've managed to meet And in spite of higher costs, which we in terms of shipping and airfreight, which we've continued to deal with, We still believe that through price management that we can achieve the margins, which will Allow us to deliver the targets that we are forecasting.
Yes. The other way to answer your question more directly is that We expect our growth will be significant in fiscal year 20222023. And we are very confident to see that happen. But if in case it did not happen, then that means we have too much resource now. So we may Reduce some resource in U.
S. A. Quarter. I hope we don't want to do so, but if we had to, we will, and we have that option. So that will help reduce our operation cost of Hilo.
But I hope we don't need to go for that way.
Okay, understood. Thanks for the thoughts guys. I appreciate it.
Thank you.
You have a follow-up question from Mehdi Hosseini with SIG. Your line is open.
Thank you. Just a quick follow-up.
I want to get your view on
current memory prices. How do you see The trend over the next 1 or 2 quarters, and I'm asking you about availability and the pricing trends.
Very complicated question, but very good question. Yes, it's hard to predict. As at this moment, we see the availability It's getting better than last quarter. So the price changes should be less than before. And as to when the price This will stop growing or the price will go down.
We watch very carefully. So at this moment, no clear date, At least we feel it's better than last quarter. Sure. Okay.
Yes. Thanks for the color. I know it's very difficult to look beyond Couple of months. As you think about your FY 'twenty two revenue guide, how should I Think about incremental opportunities. There are a lot of AI type projects that Hyperscalers are expected to ramp.
Do you think your FY 'twenty two revenue guide capture some of them or should we wait for FY 'twenty three to Share some of them or should we wait for FY 2023 to have it to see a more meaningful material contribution?
Good question. I mean for AI, we grew very well in fiscal year 2021. In year 2022, I believe we will continue to grow very well, maybe more than 50%, I hope, right? And for Telco, Telco is another territory. We grew very well last year.
And I believe this year, 2022, our telco business will grow much better than even last year. So that's a very strong area for us. As to hyperscale, With our Taiwan operation now is ready. So we have a chance to start to service some hyperscale customer if we select to. But I believe we will be very selective.
For some leading customer, when we can provide the value, we will.
And Charles, when you talk about AI, does that include kind of the ARM based ASIC CPU or Do you lump that into the hyperscaler segment?
Very huge question. But yes, we have some ARM design as well. So even customer really pretty full on the solution, we have some solution there underdeveloped.
Okay. So when you talk about AI, it's not necessarily an ARM based solution, it's more general, right?
Many still are Intel and AMD based. Okay. Intel AMD, NVIDIA.
Sure. Sure. But when you reference hyperscalers, that's From predominantly ARM based solutions?
Not necessarily. I mean, Hyperscale was still X86, Mandy.
Okay. Got it. Okay. So We can't really isolate it because it's perhaps it's just too early to determine On based independent ARM based solution, right?
When customer needed that, We will have been ready.
Got it. Okay. Thanks for the details. I appreciate
it. Thank you.
And for the last question, we have a follow-up from Ananda Baruah with Loop Capital. Your line is open.
Hey, thanks guys for the follow-up. Yes, just wanted to ask any context you can give us about how to think about Revenue seasonality through fiscal year 2022, will there be a seasonal pattern or I mean, there will be a seasonal pattern, but will it be different than usual and fairly ratable on a year over year basis? Thanks.
Yes. As you may know, right, September always our weak season. So at least we are no exception, right? Although We have a strong demand, but global shortage. That's a major reason we try to be When we share that number with you for a second more quarter.
And then Charles, through the rest of the year, should we just assume typical seasonality To get to the into the guidance range?
Yes, basically. Traditionally, December and June Always have a good quarter.
Awesome. Okay, great. I appreciate it. Thanks a lot.
Thank you.
Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect.