Afternoon, everyone. Welcome to the Super Micro Investor Update Call. I'm James Kysner, Vice President of Investor Relations for Super Micro. I have with me today Charles Liang, CEO and Chairman of Super Micro and David Wiegand, Chief Financial Officer. There's going to be a time for Q and A at the end, so please pay close attention and note any questions you may have.
More details on that will be forthcoming. Please advance to the disclaimer slide. I'm going to read a short safe harbor before we begin. Please note that some of the information you will hear during our discussion today will It consists 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. There are a number of risk factors that could cause Super Micro's future results to differ materially from our expectations.
You can learn more about these risks and our most recent 10 ks filing for fiscal year 2020 and our 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. Today's presentation will refer to non GAAP financial results and business outlook. A reconciliation of historical GAAP to non GAAP results is contained in today's presentation.
This presentation and recording will be made available in the IR section of our company's website shortly after this video conference. Now I'll turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, James. And good day, everyone. I'm so glad, so excited to meet you over Zoom. And We have been suffering so much from a 10 ks today from the COVID-nineteen. Now, finally, we are fully recovered.
And that's why I want to take this chance to share with you what Supermango's position today, what's our plan in next coming few years. So I mean, I appreciate for this chance. Again, my name is Charles Liang and I'm the President and CEO. As you know, Xunhua Mango's DNA is innovation. As a Silicon Valley based company since 27 years ago, Our cost is higher in Silicon Valley.
Cost is higher, how can we compete with the market? We have a better product. We have better DNA. We have more efficient business. And today, I'm very happy to share with you about all of those.
1st, building power solution. Since I founded Super Micro 27 years ago, I adopt built in bulk solution as our design methodology For all our product, for all our solution. And I feel so lucky that building both solution have bring so much advantage to us. For example, new technology. When new technology are available from our partner, we are able to build a complete server, Complete a total solution for the market quicker than others because we share a block, we share a subsystem, New feature, when customer want to add a new feature, we can quickly add a module so that we provided a New feature right away, system of foundation for different customer application, different workload.
We are able to configure the system in a way that will fully optimize our customers' demands. Inventory reduction, because Across different product line, across even different generation of product, we are able to share lots of same block, Same subsystem. And that's why we don't want to keep really huge inventory. Today, for example, most of the time, we keep about $1,000,000,000 Inventory. Without this billion bulk solution, I would say we should keep $2,000,000,000 to offer same level of Support to customer to shrink the lead time because we prepare safety inventory.
Service cost, as you know, when we Ship server, storage, IoT to customer. We offer on-site service and for on-site service, we need on-site With the building focused solution, again, we are able to share components, share subsystem across the unit product line, During the generation of that. And that's why the state, our on-site spare parts as well. So that indeed dramatically lower our service cost and time to market, as you just mentioned, for design, for change configuration, For Change Workflow, we are able to respond much quicker. Indeed, it's pretty much like kids play LEGOs.
LEGOs carefully So kids or we can build a beautiful castle, beautiful tower or house immediately because Thank you to Allego's, they designed such a fancy block. Supermango here instead, we designed a block for server, for storage, for IoT. So as a silicon based company, for sure, silicon based company have its advantage, closer to a technology leader, Kind of like Intel, Microsoft, Qualcomm, for example, NVIDIA, you name it. Because of the closer relationship, that's why we are able to co develop Product solution with them. And that's why we have come to market advantage.
We have a better performance advantage. However, in Silicon Valley, as you know, also have some piece advantage. The cost is higher. Especially last 5 years, Bay Area, Housing price grow a lot, overall living costs grow a lot. So that has been a big challenge, especially COVID-nineteen last year, Another big challenge in USA, our competitor from Asia, they have a much less COVID-nineteen impact.
So in the area, Unfortunately, we faced a lot of challenge in last 5 years, for example. But this thing is we are able to take action quickly, Hello to Taiwan, aggressive and also make automation System automatic software to help our operation, to help our customer. So we invest a lot in last few years, Especially last year. And now we are ready to take advantage for USA company and being a Taiwan company as well. I'm in headquartered in Taiwan.
We have most operation, if not all, most operation under Zandlu From Marketing, Innovation, Design, Product, Production and Service, all under the same campus. USA campus in Silicon Valley, Taipei, Taiwan and then Nasser. So with the 3 headquarter, We are able to support our customer in a strategically much more efficiently, much better customer satisfaction And quickly it comes to why we're customers demand. And it also help us deliver more secure solution, Not just better quality, but more secure total solution for our customer. Optimize the total solution, We design multiple power supply, chassis and thermal solution, you name it, including firmware, Solidware and service model, all designed by ourselves and produced by ourselves.
That's why all our subsystem have been so well designed I'm close to even product and I'm close to even innovation for that. And because we also work with partner, work with customer closely, That's why we are able to exactly optimize the combination with customer workload for the application. And it's turned out also greener. We are very lucky. Since 15 years ago, I make a strong decision, design the environmental friendly solution.
And in last 15 years, we have been growing very well every year in terms of green technology. So today, I would like to say we pretty much deliver the most of wind service storage to the market. So that I have a customer save total cost of ownership, PCO and PCE, total cost to our environment. From our calculation and some of our key partners calculation, together, the worldwide data center IP user, all use The same concept as Super Microhead, winning computing, energy saving, data center, Swatchwell, Total Solutions, we together can save about 30 fossil fuel power plants. That save lots of power.
You calculate economic value. It will be about $7,000,000,000 US7 $1,000,000,000 per year. So we save lots of money for our customer through energy cost And so do some resource saving. And I only think customer had to spend had to invest, spend the time, How can they work with the right partner for a green solution? How can they work together with us, For example, to build the data center architecture to take the product advantage that we offer.
Our product Optimized for free air cooling, our product optimized for liquid cooling, optimized for liquid smart Computing. So all of those, we are very aggressively, very efficiently with customer to realize They are power saving, resource saving. So let me compare Qubu Micro's growth rate, yearly growth rate with the industry standard. Since 2000 and one to 2016, Super Micro year over year growth rate, always about 2x to 4x faster than the industry average And because of our product, because of our product solution and also because of our company philosophy, again passionate, Abrasive working together with customer. Very unfortunately, after 2017, we have a 10 ks delay And this slowdown company grows totally.
So starting from 2017, 2018, our goals It's about to be behind the industry. And then out of the 10 ks delay, 10 ks delay started in this Period end about last year, very unfortunately COVID-nineteen attacking us. So when COVID 2019 attack USA so badly. Our headquarter here for sure suffered the most. And that's why we migrate, Extend our operation business to Taiwan very aggressively and also take action to make our business automation and to train our people.
So this is slide I wanted to share with you. Super Micro indeed in last almost 20 years, Almost the only fastest growing USA based hardware company, especially from 2000 to 2016. No any other hardware company in United States or Europe are able to grow as fast as Supermicro, even half The glossary of ours. And the reason why, again, because our building blocks which are in company philosophy. So here I split to Five phase.
The first phase before IPO, 40 years of consistent growth, 90% of operation, including engineering, All folks on USA. And in 2007, after we went for IPO, we started to grow faster Because the company have started with a more resource, but very unfortunately, we did not have enough supply, did not have enough capacity. So company auto grow fast, but not super fast. Take your delay, that for sure kind of slowed down All kind of growth and then COVID-nineteen. But now the good thing is we are well prepared during last few years, Especially during the COVID-nineteen, many employee work on hold.
And then we have to figure out a way to have them work efficiently with customer, Especially when those customers also work on home. For building bulk solution, application optima especially, we got a really bad hit. And that's why we have a regulator, auto communication system to help sales customer for better communication, to optimize their system So the system have been enhanced speed up since 12 months ago, Right after COVID-nineteen start to attack us. And then in last 12 months, the system have been well developed. So we already have a trial run with more than 20 customers.
Now good news is all our 20 customer feedback Always very happy experience. So we are further fine tuned some of the system and Believe, before this summer, we will be offered a tour to all our customer, to all our sales. And after that, our customer service, our system configuration efficiency will be almost double So also we are aggressively invested in Taiwan, especially during the COVID-nineteen. So we're improving our schedule And that's why we have a 1,000,000 square feet for a new facility where we do 80 to move in, in next 3 months. So with that kind of engineering team, manufacturing and operation in Taiwan are all well trained.
So that's why last 12 months have been a big challenge to us because we had to face to COVID-nineteen challenge. At the same time, We have to invest in Taiwan very aggressively and train our people in Taiwan, hire people and train. Now this thing is it's pretty much all Achieved very well now. Also, we start to invest more software, especially Software Automation and System Management Software, open source for buyouts for BMC And we build a command center base auto commulator, again, is to support our B2B, B2C automation, Especially auto configuration for application optimized solution. So we are back to be a faster growing company again, 1993 to 2016.
And maybe we can even grow faster than 93% to 16%. So when and how we can start to grow very fast, I will share with you later. So this slide show you our new and coming soon product. The first one, 2U2Node, this is a brand new design. About 3 months ago, There is a top 50 company around the world.
They call us, say, hey, your solution is not good enough, Cost too high. And anyway, kind of you have to lower Price, otherwise, we won't make a deal. But we cannot order price as a USA company. Our cost is none of those. So we take a chance and redesign our system and then within few hours, we propose to our partner, Say, hey, how about this new idea?
Within 2 day or 3 day, customers say, great, this is exactly what we want. So we own a deal. Indeed, we own about 4 big projects in last 2 months. Even before our product is working, Customer trust us, say, hey, we believe you're a billion dollar solution. And this is exactly the system why we want.
2 outstanding performance. 1 is power consumption, much better than any of our competitor. 2nd, the cost is as low as what customer want. Sir, it's easy for maintenance. Kengdong system is specifically designed for the data center And specifically optimized for video, streaming, optimized for gaming, optimized for Kind of AI application, including autonomous driving.
So 3 months old product since we kicked off and now the system is working and we have been production in next 6 weeks, I believe. And we already have a couple of big orders, I mean 3 to 4 very large And I believe we will win another 5 or another 20 very soon, again, because of outperform in the industry. 2nd product I want to introduce to you is our Shufu Blade and Micro Blade product line. So this is a product line That really safe cable because a great server, almost 0 cable needed, save 95% on the cable, right, High density and easy for maintenance, all advantage is great. But this is great here over some other feature.
The feature, for example, able to work at a high temperature, 100 degree F or 106 degree F And that allow customer to run NIO data center at a very high temperature. For example, 100 degree F 95 degree F, data center can run at high temperature to save their cooling energy. And also because it's so well designed, indeed, this customer indeed, many customer, They don't even need air condition, just use the free air cooling or depends on the location. Some city customers need a free air condition, a free air cooling plus some water vapor cooling. So those are our customers don't use air conditioning at home.
And the same system also ready for This sub mulch cooling or kind of water cooling. So kind of have a customer save their energy costs and allow their PUE to run at 1.1 or even 1.05. Hi, Mr. I think product line. As you know, in India, we are official high volume produced there, ice deck.
And we have the largest product line, Both is a product line rating for Intel ISDAQ. I think we will see a solution And Automation. Again, like I just emphasize, shipbuilding solution application optimized, Working low optimize. And with software automation app is very important. Before we come down sales, FAA PM, engineer talk to customer and that take a lot of time and Taking lots of time to train sales and taking lots of time for our people to work with customer.
Now with automation tool, everything will become quicker, Easier than we can scale up to support many more customers. So I mean, the solution, again, we'll be ready for Open to everyone by this summer. And it's again command center based software. So whenever customer have any question, whenever our engineer have any good idea, we can talk to customer kind of immediately interacting. So I'm very excited to wait for this data center I mean, a command center base, B2B, B2C Automation.
Our main goal is Stripe. Our traditional organic enterprise, including channel bar and SI, Including AI and Machine Learning, this market is kept today about 35,000,000,000 And we have about 7% of market share today. And I foresee we should be able to grow about 13% year over year In next 3 to 5 years. And the reason why because of the software automation auto commulator have. And also we start to grow our sales team, 9 years in USA, but in Asia, in Europe and in East Coast Of USAID.
2nd driver, 5 gs telco and IoT. IoT is not new to us, but 5 gs telco, we improve a lot. Indeed, we start about 2 years ago, start the work with a handful of top 10 Tier four company around the world. And since have been going on very well, we already have a handful customer, again top 20 in the world coming. So I expect that we'll grow very quickly in this segment, hopefully 30% to 40% year.
Large data center And OEM, we have some customers before and in last 5 years because capacity was limited, USA Coast We're kind of higher. So we did not focus there a lot, but now with Taiwan facility, towing capacity, We are ready to grow quickly. Software, cloud, cloud composer, service and switch, most of the new territory. We have a team have been developing those technology for a while, and we have been ready to service that world stable by step. So talking about our headquarters in Taiwan, USA headquarter we have been expanding, Taiwan headquarter Now we'll be ready very soon.
Again, my summer new building, 1,000,000 square feet will be Perfectly ready. So our capacity from Taiwan will be ready for our growth. And kind of best COVID-nineteen impact in Taiwan, lower cost in Taiwan, so that will help us a lot. Customer focus, right, kind of traditional organic customer, middle sized, small sized enterprise with our So, Roy Automation, Congregulator, that will help us to grow quicker. 5 gs, Tier Core, Private Cloud, Top 300 account, we are growing quickly now, especially last year.
After We started to focus on those telco 5 gs and top 3 on the account. We started to gain many new account here. CEO, dollars 1 per salary, right? No borrows, no ask you. It's kind of performance based performance option.
Again, my Stock option price will be $45 about 35% higher than anticipated price. And then only when company hit a 45, $60, $75, $120 hit those revenue. I will have a start option. So it's really a performance phase. And this sounds good, sounds exciting, but I hope we have a second run.
If we surpass $120 per share In 3 years, for example, nearly years ago. So we are back For $10,000,000,000 per year revenue, again, Shipo Mango has been faster growing, steadily and 10 ks Today, Heath and then COVID-nineteen. But now we are ready. We are ready in couple area. Number 1, capacity ready from Taiwan.
And number 2, Our culture, now company, after COVID-nineteen, we are able to build a much more passionate, Much more dedicated team. I share with our people, not organized IOM and BRAN, not just me that I understand that. Again, division management, we turn to our strong leadership business as we have sold Instead of a standard industry pace, passionate and happy mind for Huynh computing And Technologist Leadership, kind of another 2 to 2 now TCO, TCE optimization and kind of automation tool For B2B, B2C and SAP have been a very mature solo act toward here. Having a headquarter with facility, about half the price, How are the costs compared with our U. S.
A. Headquarter costs? Operation costs in Taiwan, about half Well, less than half. Engineering cost, about half or less. Even sales marketing is about half the cost Compare with USA.
So with this much better cost advantage, we are ready to grow quickly. And once we hit economical scale, our cause will be further lower and company will be more Energetic, more capable to compete. With this time is limited. With this, let me pass to our new CFO, David Wegkin, for the financial number. Thank you.
David?
Thank you, Charles. I'm David Wiegand, Super Micro's Chief Financial Officer. And I'm going to go over quickly Supermicro's legacy, the investments that we've made as well as the current investment view. So I joined Supermicro in 2018 as a Chief Compliance Officer. And I first met Charles back in 2015 when I was working for another server solutions company here in Silicon Valley.
And I every day when I used to drive home, I would pass Supermicro offices. And I noticed that the parking lot was always full, no matter what time I left. And I later came to understand Why the parking lot was full, it was because Supermicro had a very passionate and hardworking of Workforce. And that workforce was led by Charles Liang, who is a visionary and genius behind it. And so I joined Super Micro At an important time in 2018, it was really an inflection point, because from 2010 to 2018, Supermicro had a compound annual growth rate of 21%.
They doubled their revenues twice, once from 2010 to 2014 And again from 2014 to 2018. They have a 27 year history of profitability. So All the time that they were growing through the IPO and afterwards, it's always been done responsibly and costs have been managed. The growth was driven by skillfully designed service solutions to marquee customers using Really solid products based on our unique product architecture and that building block solutions gives us the ability to Create efficient server solutions that always exceed our customers' price and performance expectations. This is one of the facts that differentiates us 2018 was also when we began to invest and Lea, the foundation for the future.
And we built that foundation by groundbreaking Over in Taiwan, a new building, which was going to double our capacity for production. We also added salespeople. We added R and D, especially over in Taiwan. And we added Departments to build infrastructure such as internal control, compliance, financial planning and analysis. And so we really Laid a great foundation for the future.
We used to have in our legacy the advantage of being a U. S. Manufacturer as we sold to U. S. Companies.
But now with the completion of the additional capacity in Taiwan, we have the ability to be to offer lower cost solutions and at very high efficiency, because there's a good availability in Taiwan of Hardware and Software Engineers. So I want to talk about now about The current investment outlook. So as you may know, we recently finished a second back in January, We finished a second share repurchase plan that for $50,000,000 that was completed, I think, January 4th. That made $80,000,000 of repurchases that we had completed. The Board also approved a $200,000,000 share repurchase That will last 18 months.
Now we've completed we've made the investment. We've completed Nearly supposed to go online in June, complete the expansion in Taiwan. And we are ready for the growth and that we've built a foundation for. And not only that, but we have a culture of growth that we've utilized and leveraged over the last 27 years. So let's go ahead and go to the next slide, which is a just a historic perspective of our GAAP numbers.
And These are numbers that are published in our Forms 10 ks. So let's go ahead and click one more slide and get to Our model. And by the way, concurrently with this conference, there is an 8 ks, which is being filed with a copy of this presentation, as well as a copy of the stock award plan that Charles previously mentioned. So let's talk about our target model. We're targeting an annual growth rate of between 17% 23 There's 3 things supporting this.
Number 1 is that we have built the infrastructure to allow for growth both in terms of capacity as well as efficiency. Number 2, we have a culture of growth It's been proven over the last 27 years. And number 3, we have markets that we are selling into in the 5 gs telco space, as well as the OEM and data center space, which help us in our target for growth. We have gross margins, which we are targeting 14% to 17%. We expect those margins to increase not just by not just by sales leverage, but additionally because of the efficiencies of having already built out The infrastructure to support our growth.
So we expect to be able to control costs going forward. R and D, we expect to go 4% to 5%. We are going to continue to invest heavily in R and D, But we're going to do so disproportionately in Taiwan, because we want to have our engineers close to the production area in Taiwan to support that effort. The cost is a lot more favorable And it's most efficient from a manufacturing or production point of view. SG and A, we believe that we can manage our SG and A costs to target between 3.5% and 5%.
This will drive an operating margin of between 5% 8%. The tax rate is currently 16%, but we are forecasting to go up to 21% If the President's plans for an increase in U. S. Dollar rates at the end of this year are enacted. With that, I'll turn it back to James.
All right. Thanks very much, David and Charles, for your presentation. Very brief summary. We're ready to resume growth. We have an ambitious dollars 10,000,000,000 target.
We're further aligning CEO compensation with shareholder interests with a new plan. David has presented the 1st 3 year target operating model for the company and its history. And our plan is to drive towards operating leverage and earnings growth. So next, We're going to enter the rest of this time, we're going to allocate to questions and answers. Next slide, please.
You can ask questions 2 ways. The first is to raise your hand. And we'd love it if you turn your video on. And you can also, if you're too shy, You can go ahead and submit a question via Q and A. There's a little button at the bottom of your screen.
So we'll just pause for a second to gather
Questions?
Sorry, I'm going to I'm grabbing our first we have several hands raised. The first question is going to come from Nehal Choske of Northland. Go ahead, Nihong.
There we go.
Great.
Let me Here we go. All right, great. So great that you guys are Does this provide the vision and the 3 year out model? This is awesome. And yes, the I guess the first question is that Charles, do you view this $10,000,000,000 target 3 to 6 years out As ambitious or as something that you expect to be able to achieve?
Yes. Thank you for the question. Yes, we are able to grow in 3 area very Great, Judy. 1 is our organic business, enterprise, middle sized, small sized customer. We are able to grow with our B2B, B2C auto commutator.
So with that, We are able to service our customer much more recently. With the same sales account, we pretty much can I support 50% or even 190% more customer because of the tool we have? And the tool not just help our sales, also help Our customer to approach their customer. So indeed, the multi layer. Also, with our Taiwan expansion, right, So our economic scale will grow, hopefully, double very soon.
And that will lower our cost. With those cost, we can support the customer even stronger. The second category is kind of like private cloud, top 3 anti customer, including Telco. Again, in last 2 years, we already engaged handful of customers around the top 20 around the world. And more than that is the top 50 or top 300.
So we feel very comfortable, very confident. We are able to grow for those Tier 2, Tier 3 data center, especially private cloud, including kind of Private 5 gs. And then large account, right, including large ASP, right? So Those are not data center. Now with our Taiwan facility, our Taiwan coast, Taiwan manpower, we are ready to support them.
And we always have some demand from them. But before, we are not being able to support because of cost. Now our cost become better And our capacity is on high. So we are very comfortable to grow our revenue.
Thanks. Dave, can you Care to chime in on your thoughts as to the $10,000,000,000 target aggressive or that's exactly what you expect?
Well, I think if you model out our historic growth rates, I think that the targets are achievable. And not only that, but we have a very inspired workforce, which has been dedicated for the last 27 years. So I describe it as these are very achievable things.
Great. Okay. So prior to the 10 ks filing delay, one of your first slides, Charles, implies That you were supply constrained and if you had greater supply, you could have grown faster. I guess, first, that supply is supply of engineers that can help the customers take the building blocks solutions and actually Customize it, is that correct? Is that the supplier comment?
Indeed, during the time frame, most constraint are our production capacity. Because at that time, most of our production are built in Sangouce. And our Sangouce facility was limited at that About 5 year timeframe, so very pitiful 5 year. So that's why we start to grow In Taiwan, I believe after that. And now we have a lot of capacity ready.
Thanks so much, Nehal. I'm going to give some another chance. I got a few in the queue here. So Aaron Rakers submitted a question from Wells Fargo. This question may be perhaps more for David.
Can you talk a bit about how Super Micro has changed their ability to have increased visibility in forward demand?
So I think that we've entered we've built a lot of relationships with, as Charles mentioned, with really good customers. And I think that a lot of times in our product development, The participation by customers is very deep. And so this gives us a chance to see Which direction they're going? And that's what really drives a lot of both OEM sales as well as Data center sales, as Charles mentioned, where customers are telling us where they would like to go. That's what gives us visibility.
Yes. The big thing is that, I mean, in last 5 years, we enhanced our FAE team. I believe we At least triple our FAE, fleet application engineering team about tripled the size. And last 3 years, We add one more team called solution team. So far, we have about 30 to 40 solution manager.
So this FAE payment solution team working with customer differently. So they know the customer's demand In advance, not like just from sales talk.
All right. Next Question, I'm going to turn to Mehdi Hosseini of Susquehanna.
Thanks. Thanks, Jim. I have a couple of follow-up. First, on the operation, it's great to see revenue And operating margin target, but can You also have any metric or goal for free cash flow margin? And I have 2 other follow ups.
Okay. So fair question. So today, we are not targeting to forecast free cash flows. And so I will work on that going forward, but today we're just working on margins.
But in terms of cash flow, indeed, we have been very strong. We have enough cash basically. And also now with our business extended to Taiwan, we have been building up A very good credit line with the partner in Taiwan, including a bank and especially use their low interest rate. So cash flow basically won't be any concern.
Okay, great. And I have two follow ups for Charles. First, how do you see the CPU upgrade helping you especially as you look in the back half of the calendar year. For the first time, we have a back to back CPU upgrade, Ice And later in the year, Sapphire Rapid. In that context, do you expect next fiscal year to have a much Higher growth rate.
And then the second question has more to do with the Board. It was good to see some diversification When you were addressing the filing, but can you also help us how you see If the board diversification is going to continue looking to the future?
Yes, very good question. Yes, I speak in Safae rapid, 2 product lines, 1 support PCIe Gen 4, 1 support Gen 5, both product lines are very good. And both about
I just think it will be
available almost right away. And we have a complete product line total solution ready. For several dry pit, We also have a design going on. The progress have been very convincible. And again, with our built in bulk solution, We have a solution ready for several IP almost ahead of India.
So for both Potana, we are very excited. That's waiting with CPU to be available in volume production and then we can support our customer around the world.
And then on the Board topic, Board of Directors?
Board Director okay, so thank you. Board Director, yes, I mean, last few years because of 10 ks today, so we have a lot of Board Kind of expertise in legal team in financing. And we are looking for some other people Who are really good in business technology. So we are always ready to Make some adjustment.
Thank you.
Thank you.
Next, I'm going to go to John Lopez of Vertical Group.
Hey, can you hear me okay?
Yes, we can.
Fantastic. How are you?
Great.
Good. I have a couple of questions. So the first one is, do you guys just near term, can you offer us any Calendar 2021 guidance in the context of this new target framework?
I believe this quarter end By early May, we should be able to update For the short term financial and business outlook.
Got you. Okay. That helps. My second one, if we kind of I want to sort of take these by buckets. So if we look at where 3rd parties Pretty uniformly forecast the enterprise portion of the server market.
It's generally flat, best case. If we think about your historical growth rates, that kind of 1993 to 2016 period, the enterprise market was growing. So that's kind of no longer the case. So in the context of your target for that particular segment, you're embedding a lot of share So the question I guess I have is, you've talked a bit about products, but I'm wondering either at the customer level Or perhaps geographically, is there anything else you can offer us detail wise that sort of gives you comfort in the ability to Pretty comfortably outgrow that enterprise bucket.
Yes. Thank you for the question. Very deep question. Yes, I mean, enterprise basically flat. I personally Believe so.
And however, we are able to grow in couple area. One is you just mentioned geography. Before we focus on USA, West Coast. And now we have been extend our arms sales service arm to East Coast. So now we have a getting very strong team in East Coast.
And same thing in Asia. Before, we did not focus much on Asia. By last 2 years, we start to sell the office there to hire people to train people there. And Nestle and Samsung, for European market, we suppose I believe we work globally significantly In East Coast of USA, in Asia, especially Japan, Korea and also in Europe, that's geography. In terms of product line, yes, our product line is much stronger than before ever.
Again, because of building bulk solution, we are able to accumulate Our historic design asset very recently and plus our new design, especially solid wire and firm wire. Last 2 years, we added more than double our software and firmware headcount. So now we have a much stronger BMC, open BMC especially and buyouts And kind of other management software and some application, including cloud composer, for example. So with those software value And kind of a really strong thermal total solution to support deep cooling, deep crystal mulch and kind of 3 year cooling. So we are able to gain much share from our competition, I believe.
Really helpful. Really helpful. Okay. My third one here, if we look at this OEM large data center bucket, I'm assuming that's where we're capturing hyperscale Opportunities at this point. And if I'm right about that, if I kind of look back not that long ago, maybe 3, 4 years ago, What you used to call Internet data center was like over 20% of revenue.
If we look at the disclosure you're giving us today, it was like 12 Like sort of $400,000,000 So I guess my first question is, why has the relative exposure in that segment declined Over the last couple of years, again, assuming I've got this right apples to apples. And then I guess kind of same question, like within that bucket, where there is More customer concentration, obviously, than sort of the enterprise level. What are the mechanics for driving share gain there?
Okay. Very good. I mean, the reason why we declined a large data center and OEM support in last Few years, because number 1 is cost, because last few years, the behavior cost really grow a lot And it's really hard to compete, almost no way to compete for those large CSP. We are facing Silicon Valley. So and that's why we are gradually grow our capacity in Taiwan.
And second is the 10 ks disruption. To be very early study, during that 3 years, really too much interrupt. So we are kind of a little bit defocusing that period of time. And this thing is now 10 ks today, the leasing program is 100% behind us. And even COVID-nineteen program is getting behind us for two reasons.
USA COVID-nineteen condition is improving. Second reason, our Taiwan team now have been very getting very strong. So we can leverage strong Taiwan team in engineering, In operation, in production and even sales and marketing. So that's a big change for us. And also long term, we have been a thoughtful.
We have been thoughtful a lot because of small volume higher cost. So is it will be a big hit when we can double or triple our revenue, so that they will lower our overall cost.
Okay. So I'm going to take the next question from Jon Tanwanteng at CJS Securities.
Hi, can you hear
me? Yes.
Hello, can you
hear me? Yes.
Great. And thank you for doing this, Charles and David and James. It's great to see all your enthusiasm. One thing I think that investors want to hear about is That maybe got you a little bit in trouble with the 10 ks and the delisting and controls. Can you just tell us what you've done to promote the controls and compliance culture And the systems that are associated with that while you resume your growth track?
Okay. Very good question and very important. So number 1, people work for good year and especially for economical reward. So in last Few years, during the COVID-nineteen, for sure, our stock price performance was not good. And now we are ready to take off.
And so most of our engineering, most of our senior management all have our SCU and start option. So now when they see companies start growing very fast, they are all very excited, much more excited than before. That's number 1. Number 2 is also important. I would like to say almost equal important is green computing.
I keep in communicate to our engineer, our staff, Say, hey, we develop green computing, not just have customers save money, but also have our next generation, our future generation For a more healthy environment, we have only 1 man on earth. So indeed, lots of our people, Especially in engineering and senior management. They really care. Green computing really have a good will to help the Future generation. And at the same time, green computing and resource saving help customers save money.
I just mentioned about now global, it will all use the green solution we propose every year can save The industry up to $7,000,000,000 per year. So that's a big help to customer. And when we deliver those messages to customer, Our people feel a great honor as well. But I would like to say most important still stock price. And also when company make more profit, we are able to pay our employee better packaging ratio.
All right. Next, I'll move to Ananda Baruja of Loop Capital.
I don't know hold on, let me get the video on here. All right. It says the video is on.
It is. We see you.
Cool, cool, awesome. I cannot see myself. Yes, listen, guys, Awesome. Thanks for doing this. This is great.
Just kind of getting the state of the union out there. And like really happy to see the forecast So that's great as well. David, and welcome. And so two questions if I could. Charles and David, you could each chime in on these.
For the key market segments, end market segments that you guys Have spoken too. How should we think about the growth in each of those market segments Beginning to lift up over the next couple of years. I mean, listen, you've talked in the past To some extent about this, but given that the 3 year forecast is out there now, which one should we start Really this year to start to meaningfully contribute, which one should we start next year? I think that would be helpful context. And I have a quick follow-up.
Okay. Your question is big. So 3 areas, for example, our organic business, Enterprise, distribution, we expect to grow maybe 10% to 15% yearly, especially with our B2B and B2C automation help and also beta product. And in kind of private cloud, 5 gs telco, top 300 account. Again, last 12 months, we gained a lot of account in this segment.
And we will continue to gain account in this area. So those customers like Green, they like our build in bulk solution. And I believe in top 300 accounts, we should be able to grow maybe 30% yearly, As a basically kind of a private cloud telco. And in large account, large CSP and OEM, It depends on our capacity and also depends on our profit margin. So basically, our room in this area is much bigger.
I expect to grow maybe 30% yearly or even 60% yearly, depends on Our capacity and also our resource.
And Charles, when do you believe the growth in those segments Begins in earnest.
It's a former contact with customer. And I periodically work with sales with our FAA and solution manager and talk to customers, see, hey, what do they want And compared with the competition, I believe the demand is there.
I think he's asking me when. He said when, did you say, Ananda?
It's happening now. It's happening now. That's why we put in our Taiwan 1,000,000 square feet of building to be available by June. So for sure, COVID-nineteen is not fully ended yet. I believe maybe after summer, That grows very fast and also depends on India isolate.
Okay, that's great. Great context. Thanks.
Sorry, I'm going to go to we only got a couple of minutes left here. I'm going to try to squeeze in a couple more, sorry. I'm going to go next to Dan Abrams on the buy side. Let's see here. Hey, I think I'm on.
And you can turn on your video if you like. I'm I'm going to go a couple of minutes over, by the way, everybody. If you're welcome to stay, I'll just go like 5 minutes over, so we have a couple more questions in the queue we'd like to address. Hi, can you hear me?
Yes.
Great. So some of your competitors have been quite vocal about their as a service offering. Does Super Micro need a comparable as a service offering?
At this moment, we do not have a specific one, but We work with banker, with customer. So your customer need a financial help, we can help them. And at this moment, we focus on our volume growth Because we had to grow we can grow 20% to 30% yearly. I guess we had to focus on this territory first. As to the fancy cloud or other renting program subscribe, yes, we have a plan by not in certain.
And a quick follow-up on balance sheet. Does the company have a balance sheet or a finance strategy to accompany the operating model? So a target leverage ratio that we should look at over time?
David, do you want to answer that question? The answer is yes. David?
David, you're muted. You're muted, David.
Yes, indeed, during the 10 ks a day timeframe, our financial team spend lots of effort To improve those foundation, those basic financial tool. And Today, our position has been much, much better than before ever. And David can answer you more detail maybe. David,
Yes. I was on mute somehow. But the answer is that, yes, we have modeled out our balance sheet going forward. And we will we already are using leverage. We've in our Taiwan building, we've got Actually, I think it's $45,000,000 that we've borrowed to build that building.
So we definitely have a plan going forward.
Basically, we are very safe in those concern.
Yes. The company has a very good history of cash flow generation. And so we That's done
by both by
careful expense management as well as rationalization of all our programs. So we expect that to go forward.
Okay. I'm going to go next to Ravi Patna of Hawk Ridge. Go ahead, Ravi. You can also turn your video, if you like. Hi.
Can you hear me?
Yes.
Thanks. Yes, thanks for the presentation. Just a quick question on the disclosure. Are you able to define what the differences are between OEM, large data center and this new 3 vertical of Cloud Software.
Yes. I mean, Large OEM and large cloud usually, large CSP, I mean, usually they have some special customer spec And they have a special demand. So we start to work with them in last few years and the model have been Very productive to them and to us. Especially, we are able to leverage our billion box solution. See, our billion box solution, The whole system was carefully designed.
So those building blocks solution managers are good for our regular business, but also good for our OEM, customer managed design. So we have been working with some of them and our feedback has been very positive. And that's why we prepare to do some business with some of them.
Okay. And if I may, just one more. In terms of some of the Near term growth that you're projecting here just based on your commentary and I think one of the slides shows sort of like a hockey stick in terms of 2022 growth. How much of that is contingent on Ice Lake and or Sapphire Rapids? And how much is already maybe spoken for by Some of the new customers in the pipeline that you've recently engaged.
Good question. I mean, Our business has been 27 years. So we have a very close, very tight relationship with our current customer. And at the same time, we also reach to new customer, especially top 300 private cloud, public cloud And I'm OEM. So we have a co design, some are ice dig, some are sapphire, for sure.
So Since I have been pretty underprepared.
Great. Thank you.
All right. Our final question will come from George Needham.
I'm going
to go ahead and let you talk.
George?
Georgia, maybe you're muted. Maybe you didn't intend to raise your hand. Okay. Well, I guess I'll go ahead and go to one more, Nehal Chaski for a follow-up question. That will be our last question for the day.
You guys can hear me now? Yes.
All right, cool.
James, are you able to cycle back to the early prior presentation where Charles was talking about the 2U2N Product Innovation.
To you to know, yes. Armamentous Design. Yes.
Okay, great. Charles, can you just run through again what is the Key innovations that you guys have brought to this particular market that is enabling these wins. And it sounds like this is A very significant opportunity that you guys are now hitting very soon. That would be the latter question, if that's correct.
Yes. As you know, the GPU market, video streaming, Particularly, demand growing very fast. And what people need is try to save energy cost, Energy budget as much as they can. And this machine is very high resented design, especially Cooling indeed, this is the air cooling design. Air cooling design, we are able to share all our device efficiently with For large cooling pad and also maintenance, right, kind of it's a co swappable.
So customer really happy for EG for maintenance and also the whole design was designed for high volume people email. So the system design was very simple, very cost efficient. So overall, in today's market like this, Customer really care about 3% or 5% beta cost of 3% to 5% 10% power saving. So this machine specifically optimized for those demand. And that's why, I mean, even before the product ready for production, we already have some big order waiting there.
And we continue to see more and more customer
Great. James, my last question. Can you go to the CEO compensation slide? Okay.
So I
gave these slides, by the way, just so you know for reference.
Yes, yes, I know. I don't think it's up yet though, so that's why I'm asking it. So I guess, how does this actually work here? The stock price and the revenue both have to be hit in order for the stock to be issued? Yes.
Both have been here. Okay. And who decided That how these tranches are set up? Was that the Board without any of your input? Can you just go through that?
First, I ask our boss say, hey, company are getting to different phase, different stage and company really like to grow really fast. And as a CEO, I want to have a leadership to show back the example, say, hey, I believe company will have strong growth. So my income will be 100% kind of depends on the company performance. And although For your very good idea, so they can't go back right away. So I just give them an idea and then they give me proposal And indeed, we settled down very fast.
And indeed, Labo asked me, Charles, why you are so easy to deal? What you say, yes, right away. I say my goal is to grow our company. And especially green computing, I personally Really a dreamy to make green computing everywhere around the world. And also this goal is retrievable.
And it's exactly what we planned in last many years. We extend our USA capacity, especially Triple our capacity in Taiwan. Indeed, we already tripled our capacity in Taiwan by this summer. So I mean, our capacity need more aggressive growth. And we are able to grow aggressively because good product and good cost structure, Especially when we debut the Taiwan facility.
And indeed, the last 2 years, we already hired lots of engineer, Supporting staff, sales, marketing guy and operation guy in Taiwan. So those person have been well trained. So we had to grow anyway. And the question is, we are able to grow, I believe.
All right. Thanks so much, Nehal. We're going to go ahead and wrap this up. We're a little bit over on the time, but thanks everyone for your attention and time. And we'll be having some investor events next week, including some meetings hosted by Nihao.
But hopefully, we'll see some of you there and see the rest of your next earnings call. Thanks so much.
Thank you so much.