Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Super Micro Computer, Inc. First 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, security analysts will be invited to participate in a question and answer session. The entire call is open to all participants in a listen-only basis. As a reminder, this call is being recorded Thursday, October 26, 2017. A replay of this call will be accessible until midnight Thursday, November 9, 2017, by dialing 1-844-512-2921 and entering replay pin 9330570. International callers should dial 1-412-317-6671. With us today are Charles Liang, Chairman and Chief Executive Officer, and Perry Hayes, Senior Vice President, Investor Relations. Now I'd 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 first fiscal quarter 2018, which ended September 30th, 2017. As previously disclosed by the company, additional time is needed for the company to compile and analyze certain information and documentation and finalize its financial statements, as well as complete a related audit committee review in order to permit the company's independent registered public accounting firm to complete its audit of the financial statements to be incorporated in the Form 10-K and complete its audit of the company's internal controls over financial reporting as of June 30th, 2017.
Based on these delays, during today's conference call, Super Micro will address business and market trends from the first fiscal quarter of 2018 and will discuss estimated financial results. Reference 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 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, our Form 10-K for fiscal 2016, and our other SEC filings.
All of those documents are available from the Investor Relations page of Supermicro'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 remarks, we will have a Q&A session, which sell side analysts will be permitted to ask questions. Questions should be directed to the company's business update covered in today's call. The company will not address any questions regarding 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 first quarter. With Supermicro's 3D IO launch last quarter, we have sped up our already strong growth in revenue, market share, and brand name value. Our new quarter results confirm that we have been and continue to be the fastest-growing Tier 1 IT infrastructure provider, capable of delivering first go-to-market product innovation at a global scale, with quality management software, service, and support. In addition to strong revenue growth, we kicked off several new strategic products in strong emerging technology markets that should deliver significant future growth. Earlier in the quarter, we launched our complete portfolio of new X11 products based on the new Intel Xeon Scalable processor or Skylake family. This launch was the product of over two years of effort with about 2,000 engineers.
As a result, we were ready at launch with over 100 product offerings. The X11 business quickly ramped, with new systems representing 12% of all processors shipped. The key to the successful ramp was the breadth of our portfolio and our time-to-market advantage with powerful new technology built into the new platform. We will continue to leverage our new product advantage in the coming quarter and ramp continuously. Computer systems account for a great portion of the business at approximately 75% of our overall revenue. The growth of computer systems has been driven by new technologies such as support of hot swappable NVMe, higher memory density, accelerated computing, higher TDP CPU support, and higher bandwidth connectivity. These technologies benefit from our in-house engineering, design, and validation to provide a customer with higher performance, usability, and quality solutions.
Moreover, our computer system carries a higher average sales price, ASP, and strategically increase the opportunity for additional management software and global service revenue. Delivering superior products and data center technology to the market continues to be the cornerstone of our company. This quarter, we saw strong performance for our Twin multi-node systems storage, especially our all-flash NVMe Ultra platform, GPU-accelerated computing, and blade servers. Our new multi-node BigTwin architecture is one of our fastest-growing new product launch ever. The BigTwin provide both higher density and efficiency than traditional rack mounts, while supporting state-of-the-art features, including all-flash NVMe, 24 DIMM memory, and the highest performance Intel Xeon Scalable processors. Our Ultra NVMe server also perform well. With more expandability option, they are optimized for high-performance storage, analytics, and in-memory application. For example, the 2U20 NVMe Ultra platform deliver a record-breaking 80 million IOPS.
The design utilizes an unbroken architecture, allowing 80 PCIe lanes to the 20 NVMe SSDs directly for uncompromised direct connection to achieve maximum storage performance. In storage, which accounts for 20% of our overall business, we saw strong customer demand. Our capacity maximizes top-loading storage portfolio is anchored by our 90- and 60-bay storage server and tape outs. To strengthen our portfolio and increase customer choice and efficiency, we have started high volume production of the brand new SureTAP 45-bay storage server with NVMe caching option and high TDP CPU support. We have also launched a new category of 1U petascale products. The all-flash NVMe 1U JBOD, meaning just a bunch of flash, and a 1U SuperServer, which supports 32 hot-swappable NVMe SSDs, providing high performance capacity at petabyte scale. Think about that. One petabyte in 1U.
The new 1U all NVMe storage server and JBOD provide shared storage pools that are rapidly becoming the preferred hardware infrastructure for demanding big data analytics applications such as autonomous driving and real-time financial fraud detection. Up to 12 hosts can be directly connected to the 1U pooled NVMe storage. Alternatively, for customers who want to deploy an NVMe over Fabric solution, hundreds of hosts can be connected to the pooled high performance NVMe storage over Ethernet, InfiniBand, Omni-Path, or PCIe. As the market shifts to more flash-based solutions, we see much stronger adoption of NVMe in both hybrid as well as all-flash solutions, especially for OpenStack, cloud, and hyperconverged solutions. Coming this quarter, our new dual NVMe solutions will be first to market with truly NVMe optimized server that provides higher density, bandwidth, and improved latency for big data analytics and large-scale solutions.
We are especially excited about our high performance and accelerated computing business, which was approximately 11% of our total revenue for the first quarter, and that grew more than double from last year. We continue to develop our accelerated computing product line, targeting machine learning, deep learning applications, and AI. As we indicated last quarter, we are working with a number of automotive companies for autonomous driving technology, which requires accelerated computing as well as NVMe storage solutions to achieve the desired compute IOPS and latency combination. Most recently, Super Micro announced optimized solutions for the new NVIDIA Tesla V100 GPUs. Our 4U system supports up to eight V100 GPUs with NVLink design for HPC cluster and the hyperscale workload. We also have a single root complex PCIe design that supports up to 10 GPUs in 4U, which has shown dramatically improved GPU peer-to-peer communication and performance compared with previous generation.
For even greater GPU density and scalability, our 1U solution that supports up to four V100 GPUs per system or up to 168 GPUs per standard rack. Other than GPU, we have developed a brand-new blade solution featuring the new bootable Knights family accelerator from Intel. Our 8U SuperBlade can now be configured with a mix of scalable processor blade and Knights blade optimized for AI training and inference applications. The Knights blade is just a start of our deep learning engagement into this exciting market. By partnering with the leading accelerated computing and semiconductor company, we developed next-generation deep learning and AI platforms. We have invested additional engineering resources this quarter to co-design this solution. They will present us with significant market opportunities going forward. We also launched a new 6U SuperBlade solution designed to future-proof our customers' investment.
Co-designed with Intel, that disaggregated architecture enable the independent upgrade of the CPU and memory, I/O, storage, as well as the power and cooling. With the lower initial acquisition cost and TCO, the new architecture provide higher return on investment by supporting multiple generation of independent technology refresh. SuperBlade and BigTwin system are optimal building block for rack scale solutions. Along with the Supermicro RSD software , our rack scale total solution empower cloud service provider, telecom, and Fortune 500 company to develop their own agile, efficient, software-defined data center. The solution deliver up to 54% improvement in cooling power efficiency. Preventing vendor lock-in, this solution ship with open industry standard IPMI 2.0 and Redfish APIs, designed to lower management overhead in large scale data center and other enterprise. Before ending, let me circle back with some detail on the business side.
From a geography perspective, North America remain consistent at more than 50% of our business. Asia Pacific, our second strongest geography, extends its recent growth, and we expect that it will be more than 25% of our worldwide business, with China making up the majority. EMEA was lower as seasonal effect impact result. Here are some update on a few other key market verticals for this quarter. Our IoT and embedded activity continue to represent approximately 10% of our business. Internet data center, IDC, improve due to more project wins, and we expect it will be approximately 10% of our business. The overall enterprise business continue to grow. Our China business is in the range of low to middle 40% of our business. Super Micro's momentum of strong growth continue into our fourth quarter of 2018.
We recently expect to report revenue for the quarter at the top end of our original revenue guidance, which will be about 29% growth from last year. As I have mentioned earlier, we have initiated multiple high potential platform co-develop with our strategic partner during this quarter. We have invest our resource to embrace this new opportunity ahead of us, and we will aggressively execute our strategy. In summary, we have begun fiscal 2018 on a strong note with our first quarter revenue continuing the momentum of the past several quarters. We are fully prepared for the ramp of the technology transition that is just beginning. With our industry-leading product line now shipping, we are on track for a $3 billion runway for the December quarter. Let me now turn the call over to Perry.
Thank you, Charles. As indicated previously, we will have a Q&A session in 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 provided. We will not answer any questions related to the delayed filing of our 10-K. Operator, at this time, we're ready for questions.
Thank you, sir. Ladies and gentlemen, our question and answer session will be conducted electronically. To ask a question, firmly press the star key followed by the digit one on your touchtone telephone. We'll take your questions in the order that you signal. If you have found your question has been asked or answered before you could ask it, would like to remove yourself from the queue, please press the star two. Also, if you are on a speakerphone, please make sure that your mute function is disengaged so that your signal can reach our equipment. Finally, we do ask that you please limit yourself to one question and one follow-up until the entire queue has had an opportunity to ask a question. We'll then come back to you for additional questions.
Again, that is star one if you'd like to ask a question. We'll pause for just a moment. We'll now take our first question from Alex Kurtz with KeyBanc Capital Markets.
Thanks, guys, for taking a couple questions here. I have to say, this is unusual circumstances. I have to say the questions I need to ask are related to the business update. Hopefully, you can touch on them at some level. What gives you the confidence to provide forward guidance into the current quarter, given that the audit committee is reviewing transactions that may still be part of the business today?
Hi, Alex. Thanks very much. It's a good question. We feel pretty confident that in the revenue number that we've indicated today, that it is within a prudent range. Even though we can't really provide a total complete baseline yet because 2017 isn't finalized, we do feel confident that within this range that we've indicated at $675-$685, that it is an appropriate range. Going forward, we are continuing with the momentum of business that we've had in the past. If you look back to starting with last December, it's based on a great mix of new customers and market verticals that are all growing, as you can see from what we've reported. We feel pretty confident.
As we've been saying for several quarters as well, we think that we'll end the calendar quarter at a $3 billion run rate, and Charles has just reiterated that in his remarks.
Okay. I'm just still a little confused about why even go out on the limb and provide December guidance, but maybe just that's something you just can't talk to right now.
Well, we do think it is important to provide trends and the growth, indicate direction of growth. It was also indicated in the current quarter number, which we just provided you as well.
Again, back to what you just mentioned, I mean, the $3 billion run rate should be achievable.
Last question from me. Can you give us any update on your CFO, Howard, and his status with the company at this point?
Yeah. Howard is working very hard on the issues related to the filing of the 10-K at this moment.
Okay. Thank you.
Thank you. We'll now take our next question from Brian Alger with Roth Capital Partners.
Hi, guys. Again, thanks for taking some questions in some untraditional circumstances here. Just for a clarification point, reading through the release today and kind of going back to the delay that we're incurring here on the 10-K. To be clear, what's being evaluated by the audit committee isn't whether or not the revenues were real, but rather or not the documentation around which period the revenues were recognized. Is that the case?
Brian, good to talk to you again. As I indicated, we're not going to answer any questions related to the filing of the 10-K.
Okay. I thought it was in the press release today, okay. Coming back to the update with the margins that you guys, the range of gross margins that you're providing, it would indicate that we're not seeing any improvement in the dynamics from the memory side of the equation. Is that still what's pressuring the gross margins at this point, or has there been a shift from a product dynamics?
Charles, would you like?
Yeah, I guess memory price may grow a little bit this quarter again. Good thing is we have a good inventory. I mean, and good relationship with vendor. We believe business will continue to grow smoothly.
Okay. Are you continuing to purchase inventory in advance for key customers, specifically memory inventory?
Kind of a mix. Overall, our memory SSD condition is in a good condition, I would have to say, overall.
Yeah, I think you can safely say that what we've been doing over the past several quarters, we are continuing to do that. We are continuing to hold inventory going into the quarter. It's still not enough to see us through the whole quarter. As we've talked with investors previously, we are, during the quarter at some point, still acquiring inventory to support our customers.
Okay. Other than the efforts going on surrounding the review here with the 10-K, has there been any structural changes that would affect the operating expenses of the company outside of normal business operations?
No. Everything is pretty much the same. We have a great business. We wanted to do this business update because it is a very strong business. It is growing very strongly. We have tremendous opportunities. As Charles mentioned in his remarks, we have great opportunities in new projects with some of the leading semiconductor companies, for revolutionary designs in AI. As a result of that, we've added some engineering headcount in the previous quarter. That is one of the things that impacted operating expense somewhat, this quarter. No, everything is on track.
Basically the new process of Skylake and the NVMe product line have been all ready to ship. We believe the business will continue to grow strongly.
Okay. Just one final one. You mentioned IoT and data center, each being roughly about 10% of the revenues. I'm curious how the storage business was tracking for the company, given how fast that's been growing for you guys over the past couple of quarters.
Yes. Storage business was, we called out here that, was greater than 20% of the entire business. It continues to grow. In fact, I think you could say this quarter, we actually saw our open storage grow a little bit faster based on some of these designs, which Charles called out. Especially, the top load, especially some of the NVMe solutions, they're growing very rapidly.
For big data, AI, HPC, and we have been growing very well, including our storage solution for that market.
Okay, great. Thanks, guys.
Yeah.
Thank you. Once again, as a reminder, that is star one if you'd like to ask a question. We'll now take our next question from Nehal Chokshi with Maxim Group. Please go ahead.
Yes. Thank you for doing the call as well. There will be no presentation or CFO commentary because, obviously, the results have not been audited yet, correct?
That is correct.
Okay. Charles did run through some of the vertical data, but, Perry, could you just run through that one more time real quickly? I'm sorry.
Yeah, sure. We said storage was greater than 20% of our business. Accelerated computing, also 11%, well greater than 11%. IDC, was approximately 10%. IoT, again, approximately 10%. Channel was sort of mid to low 40% of total business, and enterprise was approximately mid-single digits, call it 5%, a little bit more than 5%.
Okay. The reason why there's more uncertainty around what channel was as a % of revenue is that that's where the uncertainty resides with the when revenue recognition should be getting done. Is that a correct interpretation?
Again, Nehal, we're not going to discuss anything related to the 10-K filing.
Okay. All right. What's the status with the repurchase program? I believe it expired, and I think you repurchased close to $20 million at one point in time. Would you guys consider opening this back up?
Yeah. Your numbers are correct. We did have it. It expired in June, and it has not been reauthorized.
Would you consider, is there a proposal on the table or considering proposing it to restart the repurchase program?
It always is something that's in the back of our minds. At this point in time, we want to invest in our business to provide a greater return for shareholders.
Okay. It sounded like inventory is up Q-over-Q, therefore your cash conversion cycle continues to inch up year-over-year because you're making sure that you have enough inventory to fulfill demand. Is that correct?
That is not correct, Nehal. We haven't provided that level of detail. Cash was up somewhat higher than it was in the previous quarter. That's pretty much the extent of what we've provided.
Okay. I'll cede the floor. Thank you.
Thank you. We'll take our next question from Mark Kelleher with D.A. Davidson.
Thanks for taking the questions. I know one of those numbers, Perry, could you reiterate what % of revenue was Skylake? I think that was given out.
Yeah. What we talked about is X11 platforms. X11 platforms represent the Skylake. It also represents a portion of it is UP and DP. Overall, X11 represented approximately 12% of the total processors that we shipped out.
Those processors typically carry higher gross margins, those systems, correct?
Basically. Yes, they do.
That didn't seem to help the gross margins in the quarter. Is that being offset by the memory issue being a little bit more significant?
Well, as we've been saying, we're very much in the early days of the ramp, okay? The DP portion of the X11 is still ahead of us. We'll get a little bit more here in the December quarter, probably improve quite a bit. Then really the ramp starts to take hold, beginning in the calendar year. As you know, that'd be about six months since the launch. That's when there starts to be a lot more allocation in the market. Gross margins overall were impacted by seasonal utilization, impacted by geographic mix with strong China revenue, impacted somewhat by product mix to more component-reliant systems. Plus, we're also in this transition phase from a mature Grantley lifecycle technology to the new Xeon Skylake family. That's still going on. Yes, there were some continuing component pricing, SSD, and DRAM issues.
All right. That's all I have. Thanks.
Thank you. It appears at this time we have no further questions. I'd like to turn the call back over to Mr. Liang for any additional or closing remarks.
Thank you for joining us today, and we look forward to talking to you again in the end of this quarter. Thank you, everyone. Have a great day.
Thank you, ladies and gentlemen. That does conclude the Super Micro First Quarter Fiscal 2018 Business Update Conference Call. We do appreciate your participation. You may disconnect at this time. Thank you.