Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Super Micro Computer Incorporated Second Quarter Fiscal 2018 Business Update Conference Call. The company's news release issued earlier today is available from its website at www.supermicro.com. During the company's presentation, all participants will be in a listen only mode. Afterwards, securities analysts will be invited to participate in a question and answer session, but the entire call is open to all participants on a listen only basis.
As a reminder, this call is being recorded Tuesday, January 30 2018. A replay of the call will be accessible until midnight Tuesday, February 13 2018 by dialing 1844512 2921, and entering replay PIN 5210439. International callers should dial 14123-1766 71. With us today are Charles Liang, Chairman and chief executive officer, Kevin Bauer, Senior Vice President And Chief Financial Officer, and Perry Hayes, Senior Vice President, Vet, Investor Relations. And now I would like to turn the conference over to Mr.
Hayes. Mr. Hayes, please go ahead, sir.
Good afternoon, and thank you for attending Super Micro's business update conference call for the second quarter fiscal 2018. Which ended December 31, 2017. As announced in our press release, the company has completed the previously disclosed investigation conducted by the Audit Committee. Additional time is required to analyze the impact, if any, other results of the investigation on the company's historical financial statements as well as to conduct additional reviews before the company will be able to finalize its annual report on Form 10 K for the fiscal year ended June 30, 2017. The company is unable at this time to provide a date as to when the Form 10 K will be filed or to predict whether the company's historical financial statements will be adjusted or if so, the amount of any such adjustment.
The company intends to file its quarterly reports on Form 10 Q for the quarters ended September 30 December 31, 2017, possibly after filing the Form 10 K. Based on these delays, during today's conference call, Super Micro will address business and market trends from the 2nd fiscal quarter of 2018, and we'll discuss estimated financial results. But reference to any financial results are preliminary and subject to change based on finalized results contained and future filings with the SEC. By now, you should have received a copy of today's news release that was distributed at the close of regular trading and is available on the company's website. 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, in the press release we issued earlier this afternoon or our most recent Form 10 K and our other 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 outlooks.
At the end of today's prepared Questions should be directed to the company's business update covered in today's call. The company will not address any questions regarding the audit committee investigation or the delay in the filing of the company's 10 K. I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.
Thank you, Perry, and good afternoon, everyone. Let me summarize the second quarter. Our second quarter revenue will be in the range of A and F40 to A15 1,000,000. Surpassing our quarterly guidance and exceed our long term guidance of reaching the $3,000,000,000 long way by December 17. Now long term investment to grow our largely enterprise customer base, along with our investment in global operational infrastructure, data center management, solar air, and global service continued to increase in treadmill and non GAAP profitability.
You are also able to improve our non GAAP operating margin and EPS by increasing oversight and control of our operational spending growth. In this seasonally strong quarter, we achieved over 30% $1,000,000 growth year over year. And we saw robust shipment throughout the quarter. We grew in all market vertical, including X-ray, AI, machinery, storage, IoT, embedded, Internet data center, cloud, and particularly strong growth with Dutch enterprise customers. Our completed system business reached more than 175,000 nodes.
Which resulted in an increase of our system business to approximately 77% of our total revenue. We also grew in every geography with rapid growth, again, been in Asia Pacific and in China, specifically. Our performance this quarter demonstrated that Our aggressive execution on Supermind HostredBio is a great strategy to grow our business. We saw accelerated growth in design wins and revenue with large enterprise customers. Expansion in Dutch volume sales to internet datacenter and growth in our traditional channel business as well.
We are also seeing a strong ramp of our new system based on Intel Scalable Process Family. The Skylake product line grew more than 100 percent quarter over quarter. With the new X surveillance Skylake systems, We introduced Max Leading Innovation, the Bitcoin System featuring 4 dual process nodes in Puyu is truly a product and match in the industry. It is the industry's only no compromise, multiple, no solution that delivers the best in class hyper convergence and the recency, while also supporting floor performance 205 watt CPU, 2014 for maximum memory, all flash NVLE, low latency and expanded the IO flexibility. We are seeing strong growth across multiple market with the product.
And we just fuller enhanced the product with a 3 UPDI design, delivering and actual 30% performance again in certain applications. NVMe Fresh storage continues to play a major role in our success. With our open traditional storage platform growing 47% year over year. Chipu Micro's new all flash NVMe one use case of just a bunch of fresh and one use super server. Which support for 32 U.
S. 2 NVMe or NPL. Or 36 Samsung, NGS FFME. More than Chipoda, whole fledged storage capacity of polyethylene solutions and will provide petabyte scale storage and a single one new system. We also released new all flash NVMe system.
Design for high performance storage, delivering up to 18,000,000 IRF. Which latency under 10 microseconds. For our debt that is growing large enterprise customer base, We announced the the certification of SAP HANA on Super Micro to you for socket and super server with up to 6 terabytes of memory and old flash NVMe or SSD. Leveraging, high memory processing speed and multiple processor,
technology. Our
SAP handler solution is capable of running advanced analytics alongside high speed transaction and get accurate real time results. We were honored to partner with NASA to have expanded their research capability to meet NAPA's Center for Climate simulation need for expand advanced computing and data analytics used to start with our solar system and universe. We deployed a 20 WAC Scale solution fully built and integrated at our Silicon Valley headquarter. The T Mobile MicroFectin based solution has expanded NASA's research capability with a combination of safety, system performance and optimized costs, bringing an additional 1.5 packer flow to NASA research. 11 years ago, we introduced the concept of green computing, which power optimize and energy efficient systems.
This quarter, we were pleased to take a good computing to the next level with the industry's 1st resource savings architecture that expanded green computing beyond gas power savings to the overall conservation of data centered resource. The resource saving architecture contributes to a Bueno data center and deliver double digit savings in operating cost and up to 40% savings in hardware system acquisition cost. It reduces resource consumption, reducing versus replacing and refreshing to more optimal performance quicker. The architecture is built in key tobacco innovations, including our disaggregate micro blade design, the resource pooling of our latest SafeOps and storage server products. Free air cooling and our open industry standard wax clear design management We also expanded our Silicon Valley Manufacturing headquarters with a new Grag integration facility.
To support the increased capacity of WACC Care Depreements. The facility features 1 well awarded largest, clean energy, full autonomous, direct scale integration and manufacturing sites. In summary, Chipo Micro's momentum of strong growth increased in our 2nd fiscal quarter of 2018. And we exceed our target for a $3,000,000,000 any run rate based on our customer win and form pipeline of business. We expect to continue this growth in the upcoming quarters.
Moving forward, we will remain highly focused on executing our Super MicroStrategy and increasing the large enterprise customer face. Let me take this time to introduce Kevin Bauer, our new CFO, Kevin joined shippu Michael over a year ago as the senior VP of corporate development and strategy. Kevin had over 2 decades of experience in financial leadership including multiple CFO roles for high-tech company here in Silicon Valley. I'm looking forward to Kevin's contribution in the success of Supermando. Let me hand it over to Kevin for some brief comments.
Kevin?
Thank you, Charles, and good afternoon listeners. For those of you who may be new to Super Micro, I have just succeeded Howard Hedesh and CFO. Let me take a few minutes to summarize my background which was provided in a press release earlier today. Prior to joining Super Micro, I was a Senior Vice President And Chief Financial Off of Paracom Semiconductor Corporation from February 2014 until it sailed to diodes in November 2015. And thereafter, assisted diodes with the integration of Pericom until November 2016.
Prior to that, I was Chief Financial Officer of Lexar Corporation from June 2009 through December 2012 and Corporate Controller from August 2004 June 2009. Between these roles, I gained additional experience by assisting a CFO colleague in his effort to bring a company current in its SEC filings. Since January 2007, I have been a super micro in the role of SVP corporate development and strategy. During this period, I have focused on financial planning and analysis to further strengthen our forecast capability. I have I now have a number of experienced financial planning and accounting professionals that have joined my team.
I believe this broadly experienced talent will bring additional value when combined with the existing dedicated accounting staff with deep super micro experience. We announced our preliminary financial information today and today's press release, which you can refer to. Looking forward, the company expects net sales in the range of $700,000,000 to $780,000,000 for the third quarter of fiscal year 2018 ending March 31, 2018. While we work to complete our number one priority of compliance with our SEC filings, we will not be making any comments on the preliminary financial results. Again, I'm excited to work with Charles just as Super Microw is ramping, and I look forward to engaging with our investor community and sharing more about our progress after we have met our SEC filing requirements.
Let me now turn the call back to Charles and Perry for Q And A.
Thank you. As indicated previously, we will have a Q and A session now, which in which sell side analysts will be permitted to ask questions. I would like to remind you that your question should be directed to the business update that we have just provided. We will not answer any questions relating to the audit committee investigation or the delayed filing of our 10 K.
Thank If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. And we will first go to Aaron Rakers from Wells Fargo.
Great, thanks. This is Joe Petaki on for Aaron. A few questions as I could. First, I think last quarter you gave us kind of some details related to some of the segments. Growth, like hybrid high performance computing, enterprise storage, stuff like that.
Is there anything you could give us this quarter to help us out?
Yeah. Hi, Joe. Yeah. Certainly we can do that. Again, these are preliminary numbers.
So these are our best estimates, at this time. Storage was about, 22%. And, of our total revenues. And that it's up, about 22% year over year. Our, internet data center, cloud, vertical was, over 11%.
And, let me go on here. Accelerated computing Again, over 10% this quarter, the amazing thing about, the accelerated computing is that it grew about 134% year over year. So that's continuing to show a lot of momentum. IRT and embedded, was approximately 9%. And that was up also about 23% year over year.
Enterprise was approximately 7% and continues to show very strong growth based on this huge revenue base that we have for this quarter. Last but not least, is channel And that's about, approximately 42% or so. There was a little bit of overlap, as you know, from, clear times we've spoken that, some of our businesses, captured in channel, and where they do some things for us for some of our customers. Is that helpful?
Yes, that's very helpful. Thank you. And then maybe just a follow-up to that. When we look at your performance this quarter relative to the guidance, that was laid out. How do we think about what was the underlying driver for the upside?
Was there is it broad based or is there any particular market or partner you could point to?
Overall, our growth will continue to be very strong. Other than they have some component to showcase the local world. So, we believe, Those were being conducted previously. Yes. Yes, just to add here that, as we said
in Charles remarks earlier, that It was very broad days. Every single vertical was up and we were up in every geography.
Okay. That's helpful. And then maybe just one more and I'll see the floor. The management resonate that you outlined in the press release, how do we, especially related to the sales leadership, how do we think about those relative to the audit, that he that was just completed, are those related or the separate? And then how do we think about on your ability to forecast revenue kind of going forward?
So, just as you know, we said that we wouldn't comment on the, on the audit committee investigation and, and the delayed financing K. And definitely when at liberty to discuss, anything related to the audit committee. So I'm going to have to decline your question on that. But with regard to we did announce a new, person to head up our sales or worldwide sales name is Don Clegg. That was in the press release from earlier today.
The great guy has been in the company for many, many years. He's often, stepped into, that will, when people were absent in traveling, so he has a wealth of knowledge about the company and how it operates. With regard to, forecasting future, Kevin, do you like to make a couple of comments
I think first, I'd say that, you know, like most companies up to our side, we have a bottoms up process for forecasting and there are many players that are very, savvy and very skilled in terms of doing the forecasting. That is one of the areas that, I've been working on as well kind of really focused in terms of our estimates for our top customers. So, I think we have the wherewithal and the bench strength to be able to do that well. In this time of transition.
Yes, perhaps, I mean, in that suite 4 years, we have seen that way of repair for achievable Mago So with the higher and trend and also internal sales expertise. So our team is becoming a much stronger than before ever.
Okay. Thank you.
And our next question will come from Mark Heller from D. A. Davidson.
Great. Thanks for taking the questions. Congratulations on very strong revenue results. I kind of expected a little more to drop through to the bottom line. Could you talk a little bit about gross margin, your expectations there?
I know we kind of dipped again memory pricing, maybe work that in, and then talk about the operating lines, if you can, in terms of, you know, is there increased spending know you said you're going to build out you are building out the finance team a bit. There's a more G and A. Where where can we expect some puts and takes on the operating expenses? Thanks.
Yeah. Basically, our revenue has been going very strong. And, in next couple of quarters, we have a continued strong trend. However, the memory price still going higher, unfortunately. So the net of margin, gross margin, have been about flat, I guess.
Right. So, other than that, I mean, the PEs have been very strong, and we foresee a very strong growth, in next few quarters, I believe.
I'll just add to that. It sounds a little bit like last quarter, you know, we had geographic mix with very strong China revenue. We continue to have product mix where a lot of our products, have more component reliance, reliance to them. So that impacts that. And, and, you know, again, we're still at, we're still in the, grantley, life cycle technology.
So You know, as we as Charles mentioned in his comments, our Skylake, grew 100% but it was also a low base. So the big part of the ramp on Sky Lake is still ahead of us. We've said that, now for the last several months that beginning of 2018, we'll start see that, that go higher. And then, lastly, if you, you know, based on, the, report of our estimated EPS. You can probably tell from that that we did make some significant progress in terms of our, our EBIT margin.
That was up significantly as we were able to control OpEx.
Great. Just one last one, the the tax rate with the, with the changes in the long, what tax rate should we be assuming?
So I think, as we go forward, our tax rate, we're probably going to be in mid-20s or so.
Our next question comes from Madem Hasseini from Susquehanna Group.
Hi. Thanks for taking the question. This is David Ryzhik for Mehdi. So I just wanted to get a sense of deadlines that we're working with I think, in January, you filed an 8 k regarding a bank extension, suggesting that you have to file by March. Just wanted to sync up on that to see, you know, if March is really like a deadline that you're working with, for the 10 K.
David, we are working, as hard as we can with, in conjunction with the, independent auditors to try and complete this process as soon as possible. But as you've already described at this time, we're not able to really determine the date when that will happen. We do have a NASDAQ extension until March 13th, And our bank lines, with Bank of America, we have an agreement, which we've previously announced, that syncs up with that March, date.
Got it. And, I mean, is that is that a hard deadline that March date with Bank of America, or do you anticipate flexibility around that if if you need a little more time?
And, David, we we're not gonna comment about our discussions with Bank of America at this time.
Okay. Fair. And, So we we we came across some orders, from TSMC, to Super Micro through some public filings. Just wanted to get a sense of what they're for. I think it was, you know, it was a $40,000,000 order.
To Supermicro in the December quarter and maybe, we saw a follow on order. So I just wanted to get in the sense of what those orders are for. Is that internet data center business or not? And how sustainable is that is that demand from that customer?
Thank you for the question. Basically, we don't comment for specific customer business condition. However, I'd like to I'm happy to share our big win with, a lot of large, enterprise account had been a continual, going very strong. So we do feel very positive. We will continue and grow in this segment.
It's kind of Indeed, the many enterprise customer have been not going to be here in weeks.
Great. Thank you. And, you touched on the component environment. We'd just love to get a sense on, how you see DRAM and NAND today relative to your business? And how do you, how do you anticipate it impacting, your March quarter?
Yeah. Feed and price continue to grow, generally and, other components, even TTO, we can see, some, shortage of global y, especially our growth have been much faster than the average the overall industry. So we did see a a shockingly challenge, but with, getting stronger relationship with our vendor, So, there are some challenges, but I believe we will be okay.
Great. And Just wanted to get a sense of the, you know, the all the public discussion around the meltdown inspector vulnerabilities. How do you foresee that to impact, the Skylake cycle? Do you actually believe that that could actually drive some incremental, refresh activity?
Yes, good question. I mean, our guidance indeed grow more than double, over the quarter. And we we did see a strong growth this quarter and next coming of your quarter. So, overall, Skypekorepple is strong, while the last generation, domestically strong. So, especially we have a lot of, embedded IoT customers.
So overall, our growth will be pretty smooth that it is.
Great. And just last one for me. If you can talk about storage I think you gave a total storage was, 22% of total revenue, but any any sense on on next gen storage?
Next is starting to continue to grow year over year, stable. And some quarters grow more, some quarters grow less, by overall next generation study, you will continue to grow strongly.
Great. Thank you so much.
We'll now go to Nehal Chokshi from Maxim Group.
Yeah. Thank you. And congratulations on the strong results. And, at least dropping some of that, rather seeing the $10,000,000 OpEx year over year increase result in an operating profit increase on a year over year basis. So that's good to see.
The guidance for the March quarter, raw, relatively broad range at the midpoint implies it will be down 12% q over q. Which is an average, I think, is usually down the mid single digits. So, why the greater level of seasonal decline that you guys are projecting?
You know, we believe that growth was strong March quarter, even this is a seasonally slow quarter. But because of that shortage, I mean, our component shortage, global wide, so we try to be a more conservative That's why we offer a bigger range 700 to 780. Okay.
And then Hey, Hal, let
me just add as well.
As you know, for the industry historically, there's a lot of seasonality in this March quarter. Right, with the lunar new year and some of those other events that are happening. So
it's a little
bit harder to gauge with, with that plus the comments that Charles needs.
Okay. And then, The, what was the reason for the resignations of the sales leadership?
Nehal, I appreciate your question, but
I don't know whether you're listening earlier.
We're not at liberty to discuss the audit committee investigation.
So I just point out by saying that you're not at liberty to say that, then the assumption will be that the those resignations are indeed related to the audit in some way or another. So Hopefully, you can give a little bit more color as far as
what's the driver here. Again, main hall, Your conclusion is your own. That is nothing that we have, said or discussed in any of our, press releases. And we are not going to discuss the audit committee investigation.
Okay, understood. And then I do have one more question, which is audit related but I think it's a clarification, so hopefully you can answer it. But just to be clear, what was disclosed about the audit committee's investigation? Was that It was purely on the revenue recognition timing. Is that correct?
Do I recall that correctly?
That is what we have said in previous press releases.
And that is all the time we have for questions today. I'll turn the conference back over to our presenters any additional or closing remarks.
Thank you for joining us today, and we look forward to a strong 2018. Thank you, everyone. Have a good day.
This concludes today's presentation. Thank you for your participation.