Sir.
Good afternoon, and thank you for attending Super Micro's business update conference call for the second quarter fiscal 2019, which ended December 31, 2018. During today's conference call, Super Micro will address the company's efforts to become current with its SEC filings. The business and market trends from the 2nd fiscal quarter of 2019 as well as the company's preliminary financial results for the second quarter of fiscal 2019. References to any financial results are preliminary. And subject to change based on finalized results contained in future filings with the SEC.
By now, you should have received a copy of the news release from the company that was distributed at the close of regular trading and is available on the company's website. There was a slight delay with the posting of our Eight K on our website which was filed earlier today. We understand the delay is due to heavy volumes at the SEC. Before we start, I'll remind you that our remarks include forward looking statements. 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 the press release we issued earlier this afternoon and our SEC filings. All of those documents are available from the Investor Relations page of Super Micro's website. We assume no obligation to update any forward looking statements. Most of today's presentation will refer to non GAAP financial results and outlook. At the end of I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, Perry, and good afternoon, everyone. Let me first comment briefly on our 2nd quarter performance. Our 2nd quarter revenue will be in the range of 915 to $925,000,000, which surpass our quarterly guidance and represents approximately 9% year over year growth. It is our 10th consecutive quarter of year over year growth. Our growth momentum in key market segments continue with gain in Global 2000 enterprise account storage and accelerated computing.
Comparable system revenue was approximately 82% of total revenue, up 16% year over year. Driven by higher ASP per compute node. We are pleased to report continuing the growth of our business this quarter. Both in the datacenter and the edge despite the macroeconomic challenges. Schibamako is well positioned to drive continue on the revenue growth and win market share as we did this fiscal quarter.
Our fiscal year today total revenue are approximately 23% ahead of last year, in line with our traditional growth trends. Our Global 2000 business continued to show strong performance with 16% growth year over year. Our Global 2000 business utilize the entire Supermicro portfolio encompassing compute storage, accelerated computing, networking, managing the solar and services. Last quarter, our achievable rate business grew significantly. And our twin family grew 28% year over year, substantially supported by our We are consistently strengthening our management software and service offerings to provide additional value and revenue streams through our customer product life cycles.
Grid90 remains a top priority. Our resource saving system with the ability to deliver superior total cost of ownership TCO along with the bills environmental impact. Were of significant interest with leading enterprise companies. We continue to invest in our resource saving solutions improving its aggregated system and research and development on 10 year life cycle encorogels parts, price and other subsystems. These technologies will help our customers stay on both hardware and energy costs while reduced IP waste which lowered our total cost to environment.
TCE in their datacenter. Strongly grew 24% over the last year. Comprising approximately 26 percent of total revenue. Our PayMaster Online of of fresh NVMe, 1 installed in service, delivered industry based performance in FLC, high up and bandwidth supporting next generation fresh technology, such as user tool, Samsung N A1, N ARRUDA and ETSFF from PACCAR SSP. Shibomichael enables the software defined storage market with optimized high performance storage systems unlike other competitors.
Who offer higher cost with proprietary all fresh algorithms. We are excited to see many industry leaders adopter this new off edge technology, hopefully in a real time to value advantage to their next generation worker. In machine learning and artificial intelligence, we saw strong growth executed computing applications continue to grow and not giving you possibility in automotive detail and scientific verticals. We offer many additional optimized multiple GPU systems in numerous form factors, designed to accelerate data center capability and streamline deeper learning workflow. Schipomicro's new NVIDIA, SGX2 pace with super server supports 16 in media, Tesla V100 sensor GPU.
With over 80,000 calls delivering a much performance of up to 2 data flows. For AI and machinery. Looking ahead to new engineering development and growth opportunities, last quarter, we began seeking the upcoming future generation in beyond scalable assessors to key customers as we began the current quarter we launched early shift programs for those new scalable professors along with often DC persistent memory. We had received very positive initial reaction from customer base and we anticipate the upcoming server difference cycle, we have prepared full year revenue growth for Chipotle in the coming quarters. After the market moved to 5G, Chipo Micro is uniquely positioned to address solutions from the edge to the cloud.
We expanded our selection of compact IoT server solutions to address a wide range of multiples including networking, communication, security and industry automation. Our flexible new 1 new modularized network edge platform supports up to 36 network ports and is used for network function virtualization. And have been a software defined networking as the end. Next, for the multiple CPU parts and multiple AOPGA cards as well. We're bringing AI and accelerating the computing to 5gh infrastructure.
In summary, we achieved an important milestone this year, delivering 10% or Worldwide system and subsystem lawyers according to industry reporting. We will continue to gain market share with our resource saving technology to save customer hardware acquisition costs while improving their overall TCO and TCE. With our U. S. Headquarters on the manufacturing and global scale, we are uniquely positioned to bring optimized designs and comparing value to the faster growing and nudges the market verticals such as cloud, AI, and 5G.
We are also further to market on hardware technology transitions. For both compute, the new 2nd generation Intel Scalable Processes and storage including NA1, Luga and EBSFF that will help us gain new large scale design wins. I have not committed to that. This momentum will prepare Super Micro to double digit growth of its market share in 2019. And now, I will hand the section over to Kevin.
Thank you, Charles. First, I will address the current health of the business by providing an overview of our financial performance for the second quarter of 2019. I will then make a our fiscal second quarter revenue within the range of $915,000,000 to $925,000,000. With that result, we have exceeded our revenue guidance range and drive digital transformation using Supermicro's cloud and edge portfolios. On a year over year basis, EMEA enjoyed the highest growth at approximately 28%.
Followed by the U. S, which grew approximately 11% offset by a decline in Asia PAC of approximately 11%. Other regions grew approximately 23%. Our estimated range of gross margin on both a GAAP and non GAAP basis was from 13.9% Our margin benefited from improved customer mix, partially due to lower sales to Asia and a lower provision for excess and obsolete inventory. Operating expenses were higher this quarter related to product development materials, employee bonuses, audit fees and a provision for a bad debt.
We estimate non GAAP diluted earnings per share this quarter within We continue to generate cash and estimate cash generated from operations was approximately $42,000,000. After deducting CapEx of $4,000,000, estimate free cash flow of approximately We estimate free cash flow was approximately $114,000,000 that has allowed us to pay down our loans and reach a positive cash position. This quarter, our cash conversion cycle increased to 96 days from 92 days in the prior quarter. Day sales outstanding decreased slightly why inventory days increased. Our near term target remains from 85 to 90 days.
We are guiding net sales for the third quarter in the range of $800,000,000 to $860,000,000. We are now seeing normal business trends and have received some sizable business renewals at existing customers. We believe we are back to business as usual. Now let's turn the progress we are making on our fiscal 201710 K. If you recall, we concluded last quarter that receiving prior periods was necessary as we announced in and the company has achieved a significant milestone in this process.
We delivered a draft of the fiscal 201710 K with restated financial statements from 20152016 to our independent auditors in late January. They are reviewing the draft 10K and are working to complete their integrated audit. As a result of our conclusions, our independent authors continue to perform more testing of our accounting analysis and internal controls assessment. Procedures. Our internal audit team is developing a prioritized remediation roadmap to address the material weaknesses from our internal controls assessment We continue our procedures on fiscal 2018 financials in parallel and are making solid progress.
So to close, We remain laser focused on resolving our SEC filings. We continue to build industry leading technology solutions for a data hungry world We're excited for the rest of 2019 and beyond. As indicated previously, we will have a Q and A session which sell side analysts will be permitted to ask questions. I would like to remind you that your questions should be directed to the business update that we have just provided We made the client to answer questions relating to the audit committee investigation or the delayed filing of our 10 K because of pending litigation.
Ladies and gentlemen, our question and answer We will take your questions in the Please make sure that your mute function is disengaged so that your signal can reach our equipment. Finally, we ask that you limit yourself to one question and one follow-up until We will then come back to you for any additional questions. Susquehanna Financial Group. Thanks
so much. This is David Ryzhik for Mehdi. Just a few if I could, Charles, maybe would you be able to give us an update on the macro environment demand across regions? And what you're seeing in the current quarter? And maybe you can talk about what drove the EMEA strength?
And I had a few follow ups.
Yes, thank you for the question. Yes, we did, observe the macroeconomically a little bit choppy and believe we'll be a little bit weaker than last year. However, with our new product, have been very, very strong test CapEx and storage and other platform. So we believe this year, I mean, 2019, we're happy to see our growing year. In terms of market share.
And we are carefully observed a change. The memory price drop a lot, but everything is under careful control from C1 Megopro in the view.
And one of the larger enterprise storage vendors on its earnings call yesterday had noted some weakness with large enterprise companies in the U. S, elongated purchasing decisions, more scrutiny around buying systems Have you seen this as well? Just curious.
Yes, from our point of view, I mean, March quarter had been relatively, soft quarter to us in history. But this year, we do feel so far so good. We feel all change is still pretty positive to us.
And on the last update call in November, you had noted that, you were beginning to see some demand return from customers that initially paused after the Bloomberg article. Has this continued? Have you seen an improvement from customers that initially had made a pause?
Yes. We did see the improvement and the business is going on, put it in normal and positive from our current opinion.
Great. And then just on Cascade Lake, just wondering what your expectations are I guess from a calendar year 'nineteen perspective, when does this start ramping for Super Micro from a revenue perspective? And you made some interesting comments around Optane DC persistent memory. I would love your opinion on how material this could be in this cycle or do you think that it really ramps in subsequent server cycles? Thank you.
Yes, thank you. We believe that Cat's headache will be a big change for Super Micro. Although we just start shipping a sample recently. Now we did see my interest from customer side because of the better performance And as to our DG persistent memory, yes, it's good for summer niche market. And we do have some customer really interest for those applications, kind of, not database, and kind of big data kind of application, we did see some customer really interested in that area.
And what drove the high ASP per compute node?
More and more customer by our complete solution. That means including all the hardware and some management sort of So, because a higher percentage of much higher percentage of computer system, instead of based on. That's why our ASP will continue to grow. And also more people move to a Flash, especially NVMe. That was above our ASP and this trend will continue for 2019 at least.
Our next question comes from Nehal Chokshi with Maxim Group.
Yes, thank you and congrats on strong results. Strong guidance. The split between systems and components, did you give that, if not, can you?
We did not, but, just a
second here. Systems were 82%. Yes, 82%. 82%. Okay, great.
And just to be clear, were you saying that this guidance reflects a normal seasonality or not?
Well, certainly it's normal seasonality, but as we had said last quarter, we are cognizant of the macros that are out there. And so therefore, we've tried to factor that in to our thinking. We also know that customers are trying to determine, if they go for the next technology refresh cycle or not. So that could pause their, their decisions a little bit. And then lastly, Certainly, there are some components that are, declining in value and customers' time their purchases sometimes around that.
So those are the kind of the themes that we thought.
Talking about Intel, our new CPU, Cascadac learn path, I believe most Cicoban west above April timeframe.
Okay. Got it. And then Historically, Super Micro has had 4 to 6 quarters of 20 plus percent year over year growth. You guys just did that from, I think, beginning of 2017 to September of 2018. And then you have sub-twenty percent year over year growth in It looks like we're looking at 2 quarters of that being the case.
It all averages out to 20% to a 20% CAGR over what the past 12 years, which is incredible. But why shouldn't we believe we are at the beginning of a digestion period at this point here?
Yes. Again, this quarter, I mean, on a March quarter, I guess, 2 major impact. One is our memory price and fresh NVMe price drop. Now for sure, we are lower ASP a little bit. And also the macroeconomic episode and plus cascade won't be really ramped up until April or May.
That's why we try to be conservative with this quarter, March quarter.
Okay. All right. And then, it looks like non GAAP OpEx was up about $6,000,000 Q to Q. You did cite some expenses, Kevin, but I'm not too sure if that was included in non GAAP OpEx or not, but can you just give a little bit more color around that Q2 uptick?
Yes. So I had mentioned in the call that there were expenses related to, certainly our engineers developing 1st products for Cascade Lake And so that was one element of them pulling materials for that. I mentioned that we had, employee bonus this year, and we have this quarter rather. And we did have something unusual for the company and that we did have a reserve for credit loss, which doesn't happen very often.
And what was the reason for a credit loss? Just a customer having problems. Got you. Okay. And thoughts on how this OpEx should trend and also gross margin should trend for the March quarter?
Yes. So certainly, the gross margin for this quarter was quite an uptick as compared to
what we've had historically, most recently, as you remember, I called it out that we had customer mix that went into our favor, as well as we did have a pretty good, excess inventory quarter I'm not sure the E and O is going to repeat over the course of time, but do remember that what I've said is that we would be trying to work on gross margin at a modest pace over time. So this quarter, we certainly had a good one, but in the trend, we're trying to improve modestly over roughly about that 13.5 percent that we've been at for a period of time.
Operator, I think there's one more questioner in the queue.
Yes. We'll take our follow-up question from Mehdi Hosseini with Susquehanna Financial Group.
Hi, thanks. David Ryzhik again for Mehdi. Thanks for the follow-up. Kevin, you didn't note lower memory pricing as a reason for the strength in gross margins. What was was memory a benefit to gross margins in the quarter?
As I said earlier, it's really customer mix. Since I've gotten here, we've done a little bit more in terms of looking at our gross margin mix by customer and our portfolio. So we want to be cognizant of the fact of where we have margins for customers kind of like in a banding way. And so that allows us from time to time when we want to bid to win business. We do it in the context of the entire portfolio.
And so I think it's just really looking at our our mix a little bit more sharply, not necessarily a significant impact from memory in the December quarter.
And any reason for the tick up in inventory days?
Yes, we made some purchases at quarter end that we thought were advantageous. Great.
And
I was just curious on the storage and overall storage, I believe I heard 20% growth year over year. Any sense on maybe the breakout within that of traditional versus next gen?
I guess both traditional and new technology, we are both growing. But for sure, our new generation, especially, SSP, MEM PACE, the believe will be a much higher pressure to grow.
Yes. And actually, traditional came down a little bit and NexGen grew handsomely.
Okay, great. Any color around what drove that? That growth in NextGen?
NextGen, as you know, I mean, we had our first company to deliver all the new form factor, memory to the market, like a newer, for retail, and everyone on Samsung and ETSFF, Schibro Bank, who are exactly the market leader. And that kind of get a customer very good response.
Yes, I think in addition to that, we've been talking about G2000 customers. And as we have now lapped a year, some of those G2000 customers have, we have an appreciably stronger business with them than we did 12 months ago.
Great. And what percentage of overall revenue as G2 is? I think in the past you've maybe called it enterprise, but What percent of revenue is that driving?
Yes, we're probably not going to break that out right now.
Okay, okay. And then last one, IDC, what percentage of overall revenue Was that and have you seen any wins with new customers in the IDC space?
David, this is Perry. So just so you know, the G2K that we talk about is a combination of both the IDC group that we used to talk about, and it also includes enterprise group that we're now talking about. So they're they're together in what Kevin has already provided.
All right. Understood. Thanks so much. I really appreciate the follow ups. Thanks.
And it appears at this time we have no further questions. I'd like to turn the call back to Mr. Liang for any additional closing comments.
Thank you everyone for joining us today and have a great day. Thank you.
Thank you, ladies and gentlemen. That does conclude the Super Micro Second Quarter Fiscal 2019 Business Update Conference Call. We do appreciate your