Morning sessions and yesterday's sessions, we had several interesting conversations, both myself and my colleagues hosted. Now we're excited to welcome Super Micro Computer to our session this afternoon. From Super Micro, we have Founder and CEO, Charles Lang we have CFO, David Wigan and Patrick Wang, who's President and SVP of East Coast as well as Corp. Dev. So, well, thank you all for joining us.
Let me pass it on to David to make some introductory remarks.
Thank you, Wamsi. I wanted to say that certain information in this presentation contains forward looking information, including future oriented financial information and financial outlook. These statements are not guarantees of future performance, and such forward looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward looking statements. The company undertakes no obligation to update forward looking statements if circumstances or management estimates or opinions should change except as required by applicable securities laws? Thank you.
Thank you so much. Well, to kick it off, maybe, Charles, good to see you. I know it's been a few years, but you look great. I wanted to maybe first ask how Super Micro is different from a few years ago. Maybe you can help the investor base first around them with what's been happening.
Okay. Thank you, YMC and thank you all investor and potential investor. I'm very happy to join this conference. So first, what's the difference in Sifu Mango today and say 3 years ago or 5 years ago? Now major difference are number 1, our scale, business scale is much bigger now.
I mean before we are kind of a $2,000,000,000, dollars 3,000,000,000 company in terms of revenue. Now our run rate is close to $4,000,000,000 And then we have a capacity to support $6,000,000,000 to $7,000,000,000 at a time, capacity ready. And second, before we are Silicon Valley based company. And now we are still Silicon Valley based company, but also Asian based company. We have big campus in Asia now.
Our capacity in Asia now is bigger than our capacity in USA. And also, I have a capacity in NSSLHA, right? And NSSLHA, we continue to grow as well. So the scale is much bigger. And then we have a Taiwan campus now, which can produce our USA technology in Taiwan with lower cost, higher kind of volume and slightly better cost for our large scale customer.
And the other difference is a software and firmware. Before we say we are hardware company, now I would rather say we are a total solution company, based hardware and then very fancy, reliable, powerful firmware and software for BMC, for system management and for other operating systems and application as well. And then also service, again before we are manufacturer, engineering company and manufacturing company. Now we are service company as well. So Super Micro have a global service function now.
So we are able to have customer from concept, discussion, brainstorm, design, manufacture and service, including deployment and other service. So Supermango today is a total solution company instead of 5 years ago, a hardware company.
Wow, that's a lot of changes that you have brought about. Congratulations on achieving such larger revenue scale from a few years ago. Charles, can you discuss sort of Super Micro's building block solution? Why is this important?
Okay. Thank you. Building power solution has very unique design methodology we have. With Billing Bulk solution, we are able to design product faster than our competitor, because we leverage all our existing subsystem. So when customer discuss with us for certain application, application optimize, we select pretty much most of our subsystem from our existing on the shelf subsystem.
And then in some case, we do redesign some module for the optimized for customers' executive demand. But in other case, we don't have to just select a different module and then we can make application truly optimized complete solution, including rack scale plug and play, right? Kind of all existing subsystem and we make rock level plug and play. We ship to customer and customer just power on and then connect to networking and then it work. One example, for example, recently we work with Osaka University in Japan.
It's a kind of complete HPC, data complete HPC and including liquid cooling, including lots of GPU, for example. And so with optimized liquid cooling, the PUE at 1.06. And then we ship our complete rack to them, it's ready to power on and ready to run. So with billion bulk solution, it help us offer solution to customer much quicker. And then specifically customer workload and application optimize.
And it's kind of including service. So building block solution help us a lot and also help us lower our inventory because across different product line, even generation of product, we are able to share the same subsystem. So in reality, that help us lower our inventory and also make our spare parts, customer on-site spare parts much easier. So building both solution to really help us a lot.
Yes. No, that's great. Can you maybe Charles just talk about a little bit about the customer base, how that has changed and how much of your revenues now are these custom boxes that you're that the custom servers that you're making for maybe hyperscalers versus ex hyperscalers or any sense of like how much is going towards satisfying cloud based demand versus not?
Yes, very good question. We have some large customers since long time ago, but because before our Silicon Valley operation base too expensive. So we are able to support Tier 2, Tier 3 enterprise and channel, but not really Tier 1 customer because Silicon Valley based operation cost too much. And that's why we spend 5 to 7 years to develop our Taiwan campus. And now the campus is already ready.
We have about 3,000,000 square feet facility there in the same campus. So we are able to efficiently service Tier 2, Tier 3 and Tier 1 as well now. So it's our choice. It depends on our resource. Tier 2, Tier 3 is still our pretty full.
Enterprise channels, they are our focus. But we start to support some Tier 1 because our capacity is much bigger now. And in terms of application of vertical, AI, 5 gs, telco, embedded, appliance or just a regular data center, we support all of them.
That's great. So with this expansion that you're talking about in Taiwan, would you say that your cost basis and cost structure can match some of what the Taiwanese ODMs are doing?
Yes, because we design in USA. And now indeed, we have big design team in Taiwan as well. Take the background, the foundation we have here, developing in Silicon Valley, we extend the design team to Taiwan as well and then manufacture in Taiwan. So our cost is equal to our other competitor, especially our scale have been moving very smoothly very well now. We know with $3,000,000,000 per year $6,000,000,000 per year, the cost will be different.
And the operation in Taiwan will be indeed quite lower than the Silicon Valley.
So we
take both advantage. Silicon Valley face technology, quality, service, but Taiwan manufacturer course.
No, that's fantastic. I remember that you always had a very strong both technological focus and focus on green computing. How is that differentiated versus competition? And it's funny, as I was thinking about this, I remember that there was a green tie that I still have from Super Micro from many years ago.
Yes, I like green simply because I was I grew up from a country surrounded by forest. So I like green. And most important is green computing have customer to save energy cost. From our calculation in detail, it will global IT all go for green solution deeply. Together, we can save about $7,000,000,000 yearly of energy cost.
So that's a big saving for customer. And second, because we have been focused on green computing for almost 15 years now, so we have a very solid foundation, very optimized, very cost optimized green solution. So indeed, green solution won't cost the customer too much. We're talking about ROI. If customer go for deeper green computing solution, how much they have to pay for extra and how long they can return.
Indeed, that return time can be very, very faster now. Before people say 2 years, 1 year, recently my announcement in Computac. I see that ROI can be almost real time, and immediately once you decide what green the return already happened because when we approach green computing, when we offer really a good green solution, we save customer, for example, their data center air conditioning capacity for example, 500 ton to 100 ton. So save 80% of air conditioning capacity and shrink to their data center size, right, because the higher computing density and kind of also kind of save their UPS capacity. So lots of saving can be realized from the beginning.
And also because we have been focused on green computing for so long, our green computing design, the cost, even material cost, the delta is very, very minimal. So customer don't pay extra, but they have energy saving advantage and they reduce carbon footprint. And then they feel happier because they contribute to a more beautiful, less polluted planet. So without green computing, indeed, I don't know how can I find so much energy every day?
No, that's great. I wanted to ask you guys about supply chain shortages. I mean, it feels as though we hear this from every company on their earnings calls that they're dealing with supply chain shortages as it pertains to many different components. And so how is Super Micro navigating these shortages?
Maybe you guys can start or Petri?
Certainly. So, Wamsi, we have good relationships with all of our suppliers. And those relationships don't just span 1 or 2 years. They go back, in many cases, over 28 years. So therefore, we rely on our suppliers as partners during this process.
And so therefore, having good relationships helps. We also have maintained a really high level of inventory to service our customers. So are we facing shortage situations? Absolutely. But we're navigating through those and we had a midpoint last year last quarter in Q3 of $830,000,000 and our final revenues were $896,000,000 So we're managing through.
What components would you say from both an inventory perspective and from a procurement perspective are somewhat challenging?
I would rather say IC and a chip, because global semiconductor capacity limitation, right? And now with COVID-nineteen in Taiwan become very serious as well. So we are very carefully watch all of those. But I believe with our long term partnership and everything planned in long term, our impact is some, but hopefully will be continued under control.
So when you say ICs, are you talking about processors, memory? Are you talking about anything more specific that you can share Charles?
Yes. In the system, motherboard, backplane and other controls, right? So we use lots of every company, use a lot of different kind of IC, home CPU, memory and TTL, small controller, you name it. I mean, each system including more than 100 IC or components, right? So it is complicated metrics.
But we manage, I would like to say, pretty well.
Okay. Can you maybe talk a little bit about you mentioned sort of some of the impact that you have to be very careful now even in Taiwan for a COVID perspective. Are you seeing like we've heard from a lot of companies not only just escalated costs because of freight and other logistics reasons, but what all are what are you seeing real time? Are you seeing things improving? Are you seeing things deteriorating?
And just from a supply chain and component availability perspective and also from a cost freight and like shipment and logistics cost perspective, can you give us some sense on what's actually happening on the ground?
It's really complicated now and it's dynamic change every day, including recently we heard a couple of manufacturer. I mean, IC packaging manufacturer have some COVID-nineteen case happening every day now. So we are very carefully watching that. And for ourselves in our campus, in our office, we have very strict control. And so far, we're seeing that we still have a zero infection in our Taiwan campus.
And even in USA in our campus, in last 15 months, we control 0 infection from our campus in USA. So, so far we are very lucky and we will continue to control very strict.
Okay. Well, thank you for that. Can you talk about a little bit, Charles, you alluded to how you've seen so much growth over the last few years and your capacity is today? And how would you say that, that is likely to change in the next few years? I don't know if you want to take it, Charles or David.
Yes, maybe I can start a little bit. I mean, as you know, we have been suffering a lot because of the commodity base, higher cost and our revenue was small, dollars 2,000,000,000, dollars 3,000,000,000 before. And that's why in last 5 years, we spent a lot of effort to grow our capacity, including extend our capacity to Taiwan and including kind of a developed customer base to support our scale. And we have been achieved in this area very well. So last quarter, I mentioned about our $10,000,000,000 plan.
And now we are executing that plan very smoothly. I would like to say, we should have a chance to prolong the schedule, they are last quarter. We should be able to reach RMB 10,000,000,000 faster than what I promised last quarter in the other world. Last time, I said 5 to 6 years. Now I believe we can do it much quicker.
That's pretty impressive. When you think about your competitive landscape, how would you say that has changed over the last few years? Clearly, you're talking about your own cost structure improvements that probably put you much better cost structure wise with some of the Taiwanese ODMs. So would you say that is maybe the main competitors that you think about or who are you thinking about as your key competitors here?
Cost is just one factor. Indeed to myself, I truly believe our really advantage is still technology, better design, better application optimize and also stronger software firmware team. We are able to work with Tier 2, Tier 3 or even Tier 1 to improve their data center, to improve their infrastructure and make sure their data center are able to outperform their competitor. So that's the major advantage we have. Doesn't matter AI, GPU or HPC or kind of hybrid cloud, we invest a lot in last 5 years.
There's a software engineer alone, last 2 years, we doubled our solid wire headcount. So this is kind of very important resource. Now we are ready to work with customer for optimized total solution.
Okay. That's helpful. So I remember on the past, you used to work extremely closely with Intel primarily and you were able to sort of give them the initial boards to test out their chips. Can you talk about your now you're offering obviously AMD, NVIDIA. How has your sort of, I guess, partnerships evolved?
What sort of mix are you seeing across these customers? And do you think that there is also room for ARM based servers in the future and any thoughts on that?
Yes, very good question. We work with India very closely since 27 years ago. And then in last few years, we also work with AMD very closely. So we develop a strong product line with them as well. And NVIDIA now, we have a very higher GPU, AI architectural market share.
And we continue to improve our relationship because we are very close to them, all the 3. And that's why we prepare for $10,000,000,000 scale very soon. And as to ARM, we whenever our customer need, we will be ready to for them, especially with our billing box solution. The same billing box solution, I feel we are very lucky. The building blocks solution we developed is good for all our different solution, Huawei is for computing, for storage, for AI, for telco.
By the way, telco, recently, we just gained some very good territory. Some are really strong player and the relationship is building up very solid now.
No, that's great. When you think about this goal to get to $10,000,000,000 I mean, where do you think that growth is going to come from? Like can you talk about what is that plan where you get to that sort of revenue scale and what is going to be driving that?
Okay. There are a couple of area, I mean, we can grow. One is continue to grow today's customer base in this same segment, right? Even enterprise, there are still lots of new enterprise customer like to work with us, and we are happy to embrace them even in especially Tier 2, Tier 3. There are lots of opportunity for us.
And then we also start to work with Telco 5 gs partner. And we found it's really a good vertical for us. And Tier 1 data center and OEM, yes, with our Taiwan capacity now, lots of at least some of the Tier 1, before we had to say no, now we have to impress them as well. So the only limitation is our capacity still. Although we have much bigger capacity, but we support Tier 1 aggressively.
Against the capacity we have been using very soon.
Okay. That's helpful. And then maybe one for David. David, can you talk about sort of your overall balance sheet? What your cash position looks like?
What are your expectations around growth of free cash flow?
Certainly. So we ended last quarter with about $180,000,000 of cash. And our business has no problems generating cash. In fact, in the last three quarters, we returned to shareholders $118,000,000 through share repurchases. We took 4,000,000 shares off the market.
So in addition to that, we also increased our inventory levels, and we did that in response to the supply shortages as well as to increasing demand. So when you look at our balance sheet, we've grown up to $2,000,000,000 balance sheet, not through debt, not through merger, but just through organic growth. So that's been our legacy. So our balance sheet has very little debt. We use in fact, we use debt just for working capital requirements.
And so we think we have a very strong and healthy balance sheet.
Would you say that in some ways, right? I mean, when I hear Charles talk about his aspirations here to grow the business as much as he's talking about. I mean, from that perspective, it looks like the equity is quite cheap. So is there any interest in levering up the balance sheet to buy more stock?
Well, that's a question for the that's a good question, Wamsi. I think that the Board has considered that and they in fact, they authorized a $200,000,000 share buyback. And so we initiated the first tranche of that in January and took it was $50,000,000 So that's certainly something that the Board has looked at closely.
Also for the level of investment, maybe Charles just you said you're investing quite heavily into hiring software engineers and that's been a big focus. Can you maybe expand a little bit on that? Like what specifically are you hiring these software engineers or from a solution perspective? What are your customers asking for? What is the capability that Supermicro is going to have in the future because of the software professionals that you're hiring?
Yes. Because of support of Tier 2, Tier 3 enterprise telco, they are our main focus, right. While Tier 1 data center, once we have capacity, we can grow in that area. So to support those enterprise Tier Tier 1 and telco company, they really need our total solution in terms of firmware, kind of like a BMC kind of security, supply chain security, for example, and also some application patch, right? They are whatever operating system or application, we work with them closely to make sure we provide them a plug and play solution.
So customers don't have to invest their own formal engineer, solar engineer to start the interface between their environment and our machine. So that's really good value for our customer. And as what I say, we still have a lot of room to grow enterprise Tier 2, Tier 1 Tier 3, Tier 2 and go in Tier 1 ratio. So those are software firmware team, which we invested in last 5 years is very helpful and that grow our value a lot.
Okay. Thank you for that. I have a question from an investor here who's tuned in, whose question is really, what steps are being taken to ensure that there is support and the right level of corporate infrastructure to achieve these growth targets? So in terms of systems, customer service support, FP and A compliance, all these things, what steps are you taking to ensure that all of these are in place to support the level of growth that you're targeting?
Yes.
But actually in the background, we were making a lot of investments. 2 years ago, about right about this time in May, I was over in Taiwan for groundbreaking on the new campus, which is just being completed now in the 1st part of July. So we were building up for the future. And in the same way, over the last 3 years, we've added about 100 people to general and administrative functions. And so we've added an internal audit department.
We've added a compliance department. We've added more people to our finance department. And so really across the board, we've added additional software and systems and procedures in order to really get us ready for the next stages of growth. And remember, we grew between 20102018, we grew at a 21% compound annual growth rate. So we know that we have to keep making investments in infrastructure to facilitate our growth.
And that's exactly what we're doing and what we've done.
Let me add that a little bit. Indeed in last 5 years, especially last 2 years, we invest a lot on SAP, right? SAP, our accounting, our operation, software. And then especially kind of operation automation, including B2B, B2C auto configurator and also customer order online. So the system have been greatly improved and about ready to open to more and more customer.
We'll be very soon open to every customer. The other one is service, right, handle global service network, global service talent are trending, including on-site, material kind of half. So all of those have been well established.
Okay. No, that's great. I appreciate that perspective. Maybe just to talk a little bit about, when you think about your footprint out in Asia now that you're expanding, are you worried about that last administration we saw some tariffs being put in place and other structures like that that pose challenges. So when you think about your footprint in Asia, how concerned are you that you might be subject to some of these various things like tariffs or other issues, particularly when the U.
S. Seems to be very focused on driving manufacturing and everything here in the U. S. And now you're talking about sort of this administration now, maybe especially in semiconductor manufacturing anyway continuing to want to invest in the future quite aggressively. So do you see a path where this footprint is not just sort of Taiwan centric, but if needed you expand here in the U.
S? Or do you think that the Taiwan capacity is really the place to be to sort of support this future demand?
Very big question. I mean, for sure, we have a very aggressive expansion plan. I share with our senior management, hey, because of green passion, the passion were green. I like to grow company bigger, quicker. And however, in next few years, I believe it's time for Super Micro to grow our value, grow our value for shareholder, for employee as well.
So we will continue invest everywhere, but at the same time we will focus more on kind of grow company value with shareholder and employee as well. So talking about other territory, Taiwan, we started to focus on Taiwan kind of seriously about 5 years ago. And now we have a very good market share in Taiwan. Japan, Korea, same team, we're getting a bit more people higher and trend there in Europe and East Coast especially. Now Patrick was assigned as Cibomico East Coast President.
So we are ready to service our pleasure customer in East Coast. And I like East Coast people, company and territory, right? So we have a very aggressive plan. Patrick, you may add a little bit.
Sure. Sure, Charles. Back to your original question on capacity. Not only are we adding a building in Taiwan right now, we have one coming online right here in San Jose, right? So we're continuing to invest capacity resources right here in Silicon Valley.
We have capacity out in the Netherlands as well. And that's an area that we can flex up if we need to. So the way that we see it is, it's a global network capacity. We are positioned to serve our global customers wherever they need to ship, wherever the data centers are, wherever the towers and 5 gs deployments they need. We've got an opportunity there.
And just to add on to what Charles was saying earlier about East Coast, it's a tremendous opportunity for the company. It's an area that I just see blue skies there. And really what we want to do is replicate the success that we've seen in California
over on
the other side of the country. So it will be an exciting couple of years going forward.
Yes. No, thank you, Patrick. We wish you luck with that. Unfortunately, we're just about out of time. So maybe just for closing, Charles, maybe you want to address the investors who are tuned in and talk to them about why they should be excited about an investment in Super Micro?
Thank you. Thank you, Wangzhi and thank you all investment, potential investor. I'm very excited. After 10 ks BD program, finally 100% fixed and then COVID-nineteen USA is kind of much better under control now. I'm very excited to grow our business.
Now we have a capacity and we have infrastructure including SAP operation and business automation and service network already. We are USA company. We have a lot of auto made in USA. I want to say we have a high percentage of server storage product made in USA compared with any of our competitors. So we are very excited to grow in USA and ready to grow in Asia with big scale, Europe, East Coast.
So I feel very excited. And green, non GAAP green computing, non GAAP customer, safe energy cost by indeed kind of make our earth more beautiful, more great simply, right? So I'm very excited. I sleep a best hour every day now. Other than getting old, maybe don't even have much sleep, but really very excited every day.
So thank you for the opportunity. Thank you everyone. You have a good
day everyone. Thank you so much. Thank you, Charles. Thank you, Patrick. Thank you so much.
It's appreciated.
Thank you.