超微電腦 (SMCI) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated First Quarter Fiscal 2014 Conference Call. The Company's news release issued earlier today is available from its website at www.supermicro.com.

In addition during today's call, the Company will refer to a slide presentation that it has made available to participants which can be accessed in a downloadable PDF format on its website at www.supermicro.com in the Investor Relations section under the Events and Presentations tab.

(Operator Instructions).

As a reminder, this call is being recorded Tuesday, October 22, 2013. A replay of the call will be accessible until midnight November 5th, by dialing 1-877-870-5176 and entering the conference ID number 6100108. International callers should dial 1-858-384-5517.

With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial Officer; and Perry Hayes, Senior Vice President, 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 conference call on Financial Results for the First Quarter Fiscal Year 2014 which ended September 30, 2013. 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.

As a reminder, during today's call, the Company will refer to a presentation that is available to participants in the Investor Relations section of the Company's website under the Events and Presentations tab.

Please turn to slide two. 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 2013, and our other SEC filings. All of those documents are available from the Investor Relations page of Super Micro's website at www.supermicro.com. We assume no obligation to update any forward-looking statements.

Most of today's presentation will refer to non-GAAP financial results and outlooks. For an explanation of our non-GAAP financial measures, please refer to slide three of this presentation or to our press release published earlier today.

In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation.

I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Thank you, Perry; and good afternoon, everyone. Please turn to slide four. First, let me provide you with the highlights of our first fiscal quarter. We are pleased that our first quarter revenue was $309 million in a traditionally weaker season. It's 4.1% lower quarter over quarter and 14.2% higher year over year.

Non-GAAP net income was $9.9 million or 12.6% lower quarter over quarter and 223.4% higher compared to last year. Super Micro's non-GAAP earnings per share was $0.22 per diluted share compared to $0.26 in last quarter and $0.07 last year.

Slide five and six please; we are pleased with last quarter's revenue which was 14.2% higher than last year. This is a strong performance for a typically softer quarter for IT spending. This quarter the growth is actually to be the strongest among our competition.

Here is a base curve breakdown of last quarter's revenue. Our server system contributed 46.4% of our total revenue. 39.1% of our business last quarter came from OEMs and direct customers, with the internet data center accounting for 8.3% of sales. These results indicated that more and more of our partners choose our complete server solutions due to the higher quality and performance optimization.

Geographically, revenue in North America was 56.7%, Europe was 23% and Asia was 17.8% of total sales. North America and Europe continues to be strong and consistent. Recently we acquired a new 36-acre San Jose campus to accommodate our huge growth of our American market.

We also saw a strong growth from several product lines on a year-to-year basis. Our FatTwin system were up 176%, storage was up 24%, Blade was 28% higher, GPU and Xeon Phi solutions were 25% higher. MicroCloud grew 116% and continues to ramp strongly. Finally our switch products saw a good demand and were 66% higher.

Super Micro always grew in the period of technology transition. This quarter the new Ivy Bridge processor launch in the middle of September and most of our product already to support the new processor at launch. Despite a late quarter launch, the product volume ramped nicely. The Ivy Bridge launch for example is another great display of our engineering strength and business sense. Our unique business model is to be relentless in developing exactly the best product and to be first to market, proving that point we have developed over 80 optimized server solutions for the Ivy Bridge processor ready at launch.

Even now, we are still ahead of the competition with the most Ivy Bridge solutions available on the market. Our business model did not stop with our innovation along technology cycles. We continue to create brand new products that lead the industry. For example our FatTwin architecture from the great success in scale-out data center applications which is an advantage in energy savings, performance, density, cost, and ease of maintenance.

Super micro will further develop the twin architecture with higher performance, expandability and a greater efficiency. As a result, the TwinPro products and something else new and exciting will be coming soon.

Another example is our MicroCloud which is a 3U multiple node solution for data center, web hosting and cloud applications. Starting with a node at the first, we recently had launched our 24-node solution and that still fits in the 3U enclosure.

Furthermore, as competition has picked up for low-power, low-cost, high-density servers; Super Micro has developed a 6U 112 node MicroBlade system that supports Atom low-power [DO] and other processors. The system was recently on display at this year's Intel Developer's Forum or IDF.

Super Micro also continues to announce new high-density HPC solutions that are focused on GPU and Xeon Phi support; from 1U system, with 4GPU or Xeon Phi support, two Blade solutions with 20 GPU or Xeon Phi support in 7U.

Super Micro has the widest range of GPU and Xeon Phi server solutions in the market. The newest additions will support 8 GPU or Xeon Phi in the 4U system. That design in the way with no components is [pretty heated]. The fully redundant features on power and cooling also improve system longevity and availability.

On the software and service side, we have developed a software suite to help our customer manage their server [cost curves] and data center remotely. We have also officially launched our onsite service program this quarter to satisfy mission critical customers who need another [high] level of support. These products are becoming high value sources for a steady positive theme.

Now let me take a moment to address market conditions and how Super Micro is positioned to compete. We heard that our larger competitors talk about how tough the market is and we see that their revenues have been declining for many quarters. During this time that our competitors struggle, Super Micro grows and continues to grow strongly, despite the industry competition and macroeconomic headwinds.

Of course the IT market is tough, but Super Micro has continued to develop industry-leading products that have won the market share because of their superior pure performance, performance per watt, per dollars and square foot. This business model enables us for success in this industry and we continue to take market share.

We get asked why we are successful when we are not the biggest. The answer is simple. Our strong R&D, our strong global foundation now and our strong dedication as a team; we understand when you are not the biggest you have to compete smarter and harder to win. In fact, our corporate culture embraced competition since the beginning of our Company and our employees have dedicated themselves to become the best in the industry.

Indeed we are united in that belief and we are on track to grow strongly. For more specifics on the first quarter, let me turn it over to Howard.

Thank you, Charles and good afternoon, everyone. I will focus my remarks on earnings, gross margins, operating expenses and similar items on a non-GAAP basis, which reflects adjustments to exclude stock compensation expenses. Reconciliation of GAAP to non-GAAP is included in the financial statements of the Company in the 10-A earnings release and in the supplemental detail in the slide presentation accompanying this conference call.

Let me begin with a review of the first quarter's income statement. Please turn to slide seven. Revenue was $309 million, up 14.2% from the same quarter a year ago and down 4.1% sequentially. The increase in revenue from last year was primarily due to our increased in server solution sales by growth of our new products such as FatTwin, Storage, MicroCloud, GPU. Xeon Phi, to switches and racks highlight the importance of innovation and servicing the variety of needs which our customers demand.

In addition, we have continued to build our brand and image and expanded our product offerings, not only in hardware but also in management, software and support. This has further opened opportunities in the markets for us.

On a geographical basis, U.S. and Europe grew 30% and 12.2% over last year, respectively. Asia was down 15% due to competition from local suppliers. The sequential decrease in revenues from last quarter was primarily due to seasonal weakness around the world. Asia was particularly weak, due to lower data center projects last quarter.

We did see strength in our Xeon Phi, GPU and MicroCloud products which grew over 30% sequentially. In addition, Ivy Bridge was launched in mid September. With 80 models available at the time of launch, we continue to offer the broadest array of solutions to our customers and it puts us in great position to take advantage of this product cycle.

Slide eight; turning to product mix, the proportion of revenues for service systems was 46.4% of total revenues which was up from 39.5% the same quarter a year ago and down from 47.4% last quarter. ASP per server was $2600 per unit, which is up from $2,000 last year and up from $2400 last quarter. We shipped approximately 55,000 servers in the first quarter and 1,056,000 subsystems and accessories. While server units were about the same as last year, the compute nodes have increased from the prior year from customers who are driving for high-density solutions.

We continue to maintain a diverse revenue base with over 600 customers and none of these customers representing more than 10% of our quarterly revenues. Internet data center revenue was 8.3%, which was a decrease from 9.5% in the prior quarter, and 8.8% in the prior year. Furthermore 56.7% of our revenues came from the U.S. and 60.9% from our distributors and resellers.

Slide nine and ten; non-GAAP gross profit was $47 million, up 33% from $35.3 million in the same quarter last year and up 2% from $46.3 million sequentially. On a percentage basis, gross margin was 15.2%, up from 13% a year ago and up from 14.4% sequentially. Price changes from Ablecom resulted in no basis points change to gross profit in the quarter. Total purchases representing approximately 17.3% of total cost of goods sold, compared to 20.9% a year ago and 17% sequentially.

The year-over-year increase in gross margin resulted from price changes in hard disk drives since the flood in October of 2011, while lower provision for inventory reserves, given product transitions which occurred last year with the launch of Sandy Bridge as well as the favorable product mix in the current quarter when compared to the prior year.

Sequentially gross margin was up due to favorable product mix and more complete server solution and less internet data center revenue as well as lower inventory reserves. Our disk drive pricing was stable and memory pricing did increase in between the quarters, however, neither had a material effect to the gross margins.

Slide 11; operating expenses were $32.4 million, up from $30.7 million in the same quarter a year ago and up from $31.2 million sequentially. As a percentage of revenue, operating expenses was 10.5%, down from 11.3% year over year and up from 9.7% sequentially. Operating expenses was higher on an absolute dollar basis year over year primarily in R&D as personnel and expenses increased due to the annual salary increase and material expenses associated with the rollout of Ivy Bridge.

Sequentially, operating expenses were up due to higher personnel expenses associated with annual salary increases as well as prototype material and testing fees associated with the rollout of our Ivy Bridge-based products.

The Company headcount increased by 15 sequentially, to 1610 total employees. We continue to focus on leveraging the investments we have made in our infrastructure while still making strategic investments in our product portfolio.

Operating profit was $14.6 million, up by $10 million from $4.6 million a year ago, and down by $0.5 million from $15.1 million sequentially. On a percentage basis, operating margin was 4.7%, up from 1.7% a year ago and equal to 4.7%, sequentially.

Net income was $9.9 million or 3.2% of revenue, up from $6.8 million from $3.1 million a year ago and down $1.4 million from $11.3 million, sequentially.

Our non-GAAP fully diluted EPS was $0.22 per share, up from $0.07 per share a year ago, and down from $0.26 per share, sequentially. The number of fully diluted shares used in the first quarter was 44,984,000.

The tax rate in the first quarter on a non-GAAP basis was 31.7%, compared to 31.3% a year ago and 24.7% sequentially. The rate was higher from last quarter due to the pending expiration of the R&D tax credit and lower tax benefits from Taiwan. We expect the effective tax rate on a non-GAAP basis to be approximately 31% for the second quarter which is up from 24.5% in the same quarter last year. The increase reflects the pending expiration of the R&D tax credit in December of 2013 and the release of tax liability last year.

Turning to the balance sheet on a sequential basis, slide 12. Cash and cash equivalents and short- and long-term investments were $114.2 million; up $18.5 million from $95.7 million in the prior quarter; and up $52.9 million from $61.3 million in the same quarter last year.

In the first quarter free cash flow was a positive $16.4 million, primarily due to decreases in accounts receivable from record revenues in the prior quarter.

Slide 13; accounts receivable decreased by $15.2 million to $134.1 million with DSO was 42 days, an increase of four days from 38 days in the prior quarter.

Inventory of $254.3 million was comparable to the prior quarter with days in inventory increasing by five days to 89 days. The increase in inventory days was primarily due to lower cost of goods sold during the first quarter.

Accounts payable decreased by $7.2 million to $165.7 million with the days payable outstanding increasing by four days to 59 days, primarily due to decrease of cost of goods sold in the quarter as mentioned above.

Overall cash conversion cycle days was 72 days, an increase of five days from 67 days in the prior quarter.

Now for a few comments on the outlook; during the first quarter we saw a seasonally weak quarter in which we continued to grow faster than the industry and take market share from our competitors. As we enter the second quarter, we have a full array of solutions to take advantage of the Ivy Bridge launch. In addition, the second quarter is also a seasonally strong quarter for the industry.

Therefore, the Company currently expects net sales for the quarter ending December 31, 2013 in the range of $320 million to $350 million. Assuming this revenue range, the Company expects non-GAAP earnings per diluted share of approximately $0.25 to $0.31 for the quarter.

It is currently expected that the outlook will not be updated until the release of the Company's next quarterly earnings announcement, notwithstanding subsequent developments, however. The Company may update the outlook or any portion thereof at any time.

With that, let me turn it back to Charles for some closing remarks.

Thank you, Howard. Last quarter's results indicated that Super Micro is off to a strong start for this fiscal year. Many of our popular product lines performed strongly. Our leadership in innovative architecture and optimized total solutions are firmly in place. I'm confident that we will continue our growth trend in the coming quarters and years.

Operator, at this time we are ready for questions.

Thank you, sir. (Operator Instructions). Aaron Rakers, Stifel.

Yeah, thanks for taking the question. First, can you talk a little about the Ivy Bridge ramp; how will we expect to see-- how big of a contributor was that in the September quarter and how much of an impact do you expect in the December quarter? And on that same topic, you know historically we've seen in past cycles some benefit on a gross margin basis. What's your assumption on gross margin as that product cycle materializes?

Okay, I mean as I just stated, anytime there is a technology transition, it's a good window for Super Micro to grow. And Ivy Bridge; basically will provide us some opportunity [that way]. So because our original launch was September-- around the 15th right? September 10, right? So it's kind of pretty much end of last quarter; so not much impact to last quarter. But we'll have more impact to this quarter, I mean December quarter.

And we have a kind of strong product line ready; I mean other than Ivy Bridge, so for December quarter and the next coming quarters, I believe we'll be a strong one.

Okay. And you mentioned obviously Asia-Pac down 15% year over year in this most recent quarter; you mentioned two items. Obviously weak overall data center spending and then you also mentioned competitive dynamics. Can you take those two items and talk a little bit about them? What are you seeing competitively relative to maybe the weakness in this quarter being attributable to just push-outs and data center spending?

Aaron, this is Howard. With regards to the comments in Asia; yeah we saw some weakness but based on some of the yen issues that have happened over the last year, so again, that's caused us to be a little less competitive in the local geos. Other than that, there is some competition going on out there in Asia, more so than possibly the rest of the world. And we're positioning ourselves very well with the Taiwan facility. But again, it is getting more competitive out there.

And that's why it's very important we continue to strongly upgrade- we develop our facility, our manpower in Asia.

Okay, I'll see it at four. Thank you.

(Operator Instructions). And it appears at this time we have no further questions. I would 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 at 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 Year 2014 Conference Call. We do appreciate your participation. You may disconnect at this time. Thank you.