超微電腦 (SMCI) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated fourth quarter and fiscal 2015 conference call. The Company's news release issued earlier today is available from its website at www.supermicro.com.

In addition, today's call the Company will refer to a slide presentation that was 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 & Presentations tab.

During the Company's presentation, all participants will be in a listen-only mode. Afterwards security analysts and institutional portfolio managers will be invited to participate in a question-and-answer session. But the entire call is open to all participants in a listen-only basis.

As a reminder, this call is being recorded Tuesday, August 4, 2015. A replay of the call will be accessible until midnight August 18, by dialing 1-877-870-5176 and entering the conference ID number 5322120. 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 the financial results for the fourth quarter and fiscal year 2015, which ended June 30, 2015. 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 & Presentations tab.

Please turn to slide 2. 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 2014, and our other SEC filings. All of those documents are available from the Investor Relations page at 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. For an explanation of our non-GAAP financial measures, please refer to slide 3 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 4. First let me provide you with the highlights of our fiscal fourth quarter. We are pleased to announce that we achieved a record quarter of growth, as our revenue reached $573.6 million. It's 21.7% higher quarter over quarter, and 34% higher year over year.

Non-GAAP net income was $30 million, or 20.3% higher quarter over quarter, and 54.6% higher compared to last year. Super Micro's non-GAAP earnings per share was $0.57 per diluted share, compared to $0.47 last quarter, or $0.40 last year.

Slide 5, please. In my comments today I would like to discuss our results last quarter as well as our achievements during the past fiscal year. And then I will share our outlook for fiscal year 2016.

Last quarter we achieved a record high revenue, which was 34% higher than last year. This strong first quarter performance pushed our full-year revenue to $1.99 billion, almost $2 billion, representing 35.7% growth over last year. Once again, our quarterly and yearly growth rate are multiple times the industry's rate, indicating that we continue to take market share, as we have planned.

Even though some industry watchers believe the server industry is mature with minimal differentiation between manufacturers, we know based on direct customer experience that is not the case with Super Micro. Our strong performance is the direct result of our unique business model that enables our partners to succeed with the most innovative application optimized server and storage solutions, ahead of their competition.

In addition to Super Micro's broadest product range and time-to-market advantages, our products continue to deliver clear performance and feature advantages, such as best performance in heterogeneous computing with the 1U 4GPU server, highest driver capacity with a 3.5 inch driver in the 1U-space space using the FatTwin, (inaudible) drivers in the 4U JBOD, and the highest power efficiency in data center optimized servers with our TCO products.

These are just a few examples of Super Micro differentiation. Now I would like to mention some notable growth areas from our last quarter.

Our direct strategic partners account for 49.8% of total revenues. Our internet, data center and cloud products represents 15.5% of total revenues. And our complete system business accounts for 61.7% of total revenues.

Geographically, last quarter revenue in North America was 62.2%. Europe was 19%. Asia was 14.8%. And other regions were 4% of total sales. On a year-over-year basis, regional results for North America and Europe were in line with overall growth, while Asia grew minimally. We believe our continuous investment in infrastructure will directly drive growth in Asia and all geographies.

Storage continued its robust momentum as a strong product driver with 79% growth year over year. Our complete rack solution business with 64% year-over-year growth, was another story that indicated of total solutions growth.

In addition, Super Micro's FatTwin products grew 102% year over year, and [Ultra dense] MicroBlade family demonstrates one of our strongest product launches last year.

Slide 6, please. Let's further dive into our products. I would like to mention again that our industry-unique application optimizing (inaudible) solutions allowed Super Micro to excel in many different vertical markets. We have over 800 customers. Many are Fortune 1000 companies, who rely on our leading technology and differentiated solution to surpass their competitor in their market segment.

Last year Super Micro launched many new exciting products. For example, we recently launched 1U 4 GPU Xeon Phi solution, which is the best-performing accelerative server on the market. Our (inaudible) they are architectural, enable PCI-E direct connect for low latency and eliminates cabling, re-drivers, and GPU pre-heat for most efficient air flow and cooling.

Also recently we launched a 90-bay HyperScale storage enclosure, featuring top-load hot-swappable driver bay for 90 3.5 inch SAS3 or SSD in 4U. This 4U enclosure supports up to 720 terabytes of capacity, providing high-density, high-performance storage for OpenStack, surveillance, archiving, and many more uses where scale-up and scale-out deployment is required.

Earlier in fiscal year 2015, we began production of our MicroBlade, and it has become one of our strongest product launches. MicroBlade comes in many configurations, including 112 nodes or 56 nodes UP Xeon, or 28 nodes DP Xeon in the 6U platforms. This innovative architecture is a unified Micro server with networking, storage, and remote management optimized for cloud computing, dedicated hosting with content delivery and social networking applications.

Last but not least, one of our most important products we launched in fiscal year 2015 is our Ultra architecture. It is designed to deliver unrivaled performance, flexibility, scalability, and serviceability, and that can be optimized for a variety of applications. Ultra comes in 1U and 2U configurations that support a CPU up to 36 cores and 160-watt TDP, 1.5 terabyte of DDR4 memory and 24 DIMMs, 24 NVMe and a PCI-E 3.0.

Moreover, due to its versatility, the Ultra architecture also serves as spaces for many of our new system solutions, such as 1U 4GPU, and 1U 10 NVMe system.

One of the biggest strategic areas of growth for Super Micro in 2015 was our software and service business, where we have begun to offer software and service in 2014. This year many more customers began utilizing our total solution packages. For example, Super Micro's Server Manager or SSM is a powerful multiple-feature single-console server manager that configures multiple machines in parallel, including how to open system software or firmware upgrade to exponentially simplify system deployment and maintenance. It also supports the upcoming Redfish API therefore to enhance our industry-based IPMI tools.

In addition to our software management tools, we also started to ramp our service suite of offerings in 2015. Super Micro's Service is designed to help the customer improve up-time, reduce cost and increase the productivity of their investment in Super Micro products. Our service plan offers a solution consultation and tiered on-site service from four-hour response to next business day. We are especially excited that today thousands of customer service packages have deployed around the world.

Although the combined contribution of software and service only accounts for about 1% of our revenue in fiscal year 2015, I am confident that it can easily triple in fiscal year 2016, providing a proportionally greater impact to profitability.

In addition to the margin benefit, software and service enables us to win strategic business, especially with enterprise customers.

Slide 7, please? We also have been working on improving our (inaudible) for future growth by expanding our global, logistics and capacity. Yesterday we had the grand opening of our first new building at our green computing park, with 180,000 square feet of additional manufacturing space in San Jose. Also we are in the process of finishing a new building in the Netherlands, which will double our system integration capacity there. Together, the total capacity increase will be more than 35% over existing facilities, which will allow us to continue our industry-leading growth heading into fiscal year 2016.

To summarize, we continued to outpace industry growth in multiples, by growing 34% year over year this quarter. We added significant new product lines to our already industry-leading array of application optimized solutions, allowing us to penetrate deeper into our customer market. We expanded our worldwide capacity to enable future growth in all geographies. And our new software and service offerings are a significant factor to grow our [market] value. With them, we are ready to deliver even higher-value products, deploy more complete solutions, and achieve more aggressive growth going forward.

For more specific 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 today's earnings release, and in the supplemental detail in the slide presentation accompanying this conference call.

Let me begin with a review of the fourth quarter income statement. Please turn to slide 7. Revenue was $573.6 million, up 34% from the same quarter a year ago, and up 21.7% sequentially. The increase in revenue from last year was primarily due to our increase in server solutions, which was up 49.8%.

On a geographical basis, we had strong growth in the US of 42.3%, followed by Europe at 37.1%, while Asia was about flat. The sequential increase in revenues was primarily due to the seasonally strong quarter. Both our distributor and subsystem and accessory business were strong at 32.6% and 29.9% growth over the prior quarter, respectively.

In addition, our storage business was particularly strong with 31.8% growth over the prior quarter, with the majority of this growth coming from our traditional storage business, as we expanded our high-density storage solutions.

Slide 8, turning to product mix, the proportion of revenues from server systems was 61.7% of total revenues, which is up from 55.2% the same quarter a year ago, and down from 64.1% last quarter.

ASPs per server was [$400] per unit, which is up from $3300 last year and from $3900 last quarter. We shipped approximately 87,000 servers in the quarter and 1,317,000 subsystems and accessories.

We continued to maintain a diverse revenue base with about 800 customers. No customers represented more than 10% of our quarterly revenues. Cloud, internet, data center revenue was 15.5%, which was a decrease from 20.7% in the prior quarter, and from 17.8% in the prior year. 62.2% of our revenues came from the US, and 50.2% from our distributors and resellers.

Slide 9, non-GAAP gross profit was $90 million, up 35.1% from $66.6 million in the same quarter last year, and up 16.8% from $77 million sequentially. On a percentage basis, gross margin was 15.7%, up from 15.6% a year ago, and down from 16.3% sequentially. Price changes from Ablecom resulted in no basis change to gross profit in the quarter, with total purchases representing approximately 11.9% of total cost of goods sold, compared to 15.7% a year ago, and 14.7% sequentially.

The year-over-year increase in gross margin resulted from higher sales in complete server solutions, which included products such as storage and FatTwin. In addition, we have seen a rise in our service (inaudible) business, which is about 1% of revenue. It is growing quickly, and have high margins.

Sequentially gross margins were down due to higher subsystem and accessory revenues and traditional storage revenues in the quarter, offset in part by an increase in our purchasing power and higher utilization of the Taiwan facility at 68.1%.

Slide 10 and 11, operating expenses were $45.3 million, up from $37.2 million in the same quarter a year ago, and up from $42 million sequentially. As a percentage of revenues, operating expenses was 7.9%, which is down from 8.7% in the same quarter a year ago, and up from 8.9% sequentially.

Our [operating] expenses were higher on an absolute dollar basis year over year, primarily in R&D, as we invested in personnel expenses to support the development of our total solution. Sequentially, operating expenses were higher due to higher prototype and testing fees of approximately $1.4 million, and higher marketing and promotion costs of $0.9 million to support the development and promotion of new products.

The Company headcount increased by 141 sequentially to 2,285 total employees to support the expansion of the business, such as enterprise, software and services.

Operating profit was $44.8 million, up by 52.1% from $29.4 million a year ago, and up from 27.8% from $35 million sequentially. On a percentage basis, operating margin was 7.8%, up from 6.9% a year ago, and the same 7.4% sequentially.

We continue to focus on many opportunities, while we leverage the investments we have made in our infrastructure to continue to drive our operating margins and profits. Net income was $30 million, up 54.6% from $19.4 million a year ago, and up 20.3% from $24.9 million sequentially.

Our non-GAAP fully diluted EPS was $0.57 per share, up from $0.40 per share a year ago, and up from $0.47 per share sequentially. The number of fully diluted shares used in the fourth quarter was 52,609,000.

The tax rate for the fourth quarter, on a non-GAAP basis was 32.6%, compared to 33.6% a year ago, and 28.3% sequentially. The higher rate sequentially was due to the retroactive reinstatement of the R&D tax credit in December of 2014. We expect the effective tax rate on a non-GAAP basis to be approximately 34% for the September quarter.

Should the R&D tax credit be reinstated in December 2015 like it was in 2014, the impact may be 7% lower rate in the December quarter. This would make the annual non-GAAP tax rate for fiscal 2016 similar to fiscal 2015 and fiscal 2014, which was 30.1% and 30.6%, respectively. The Company continues to work on our tax planning, as we continue to expand overseas.

Turning to the balance sheet on a sequential basis, slide 12, cash and cash equivalents and short and long-term investments were $98.1 million, down $13.9 million from $112 million in the prior quarter, and down $1.5 million from $99.6 million in the same quarter last year. In the fourth quarter, free cash flow was a negative $64.2 million, primarily due to the increase in accounts receivable of $101.2 million, and $34.6 million increase in inventory, offset in part by the increase in accounts payable of $36.8 million described below, as well as an increase in short-term debt of $48.5 million.

Slide 13, accounts receivables increased by $101 million to $322.6 million due to the higher revenue sequentially. DSOs was 43 days, a decrease of 3 days from 46 days in the prior quarter. Inventory increased by $33.1 million to $463.5 million to support the growth of the business. Days in inventory were 83 days, a decrease of 13 days from 96 days in the prior quarter.

Accounts payable was $299.8 million, which was 52 days, a decrease of 10 days from 62 days in the prior quarter. Overall cash conversion cycle days was 74 days, which is 6 days lower than the prior quarter.

Now for a few comments on our outlook. During the first quarter we continued our strong growth in a seasonally strong quarter. For the fiscal year 2015 revenue was $2 billion and EPS was $2.15, which represented growth from the prior year of approximately 35.7% and 60.4%, respectively.

As we enter fiscal year 2016, we look to continue to take advantage of our broad breadth of solutions, which includes software and services, to take advantage of the expanding market opportunities which have opened up to us, as well as the leverage in the investments we have made in our operations, such as our SAP implementation and new facilities to drive our strong growth and profitability in a seasonally weak quarter for the industry.

Therefore the Company currently expects net sales for the quarter ending September 30, 2015 in a range of $520 million to $580 million. Assuming this revenue range, the Company expects non-GAAP earnings per diluted share of approximately $0.49 to $0.59 for the quarter. At the midpoint, this would represent a growth of 24.1% and 17.4% in revenue and EPS, respectively, from the prior year.

Looking forward beyond this quarter, we have updated our target for the coming two years to be 16% to 18% on gross margin, and 7% to 9% on operating margins. These targets reflect our strategy to take advantage of the opportunities we have to take market share, while still maintaining our discipline and controlling our operating costs.

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. For 22 years we have been a customer-centric technology company, always listening to them and developing innovative products that our customers appreciate. Now with our software and services package fully ready, we are able to create more complete total solutions, greater product value, and achieve a higher level of customer satisfaction.

We have more than doubled our revenue in the last three years. And by continuing our focus on our advanced product lines and customers, we expect to make another [aggressive dip] of growth in the coming years.

Operator, at this time we are ready for questions.

(Operator Instructions) Alex Kurtz, Sterne Agee

Hey, thanks guys. Can you hear me okay?

Yes, Alex, we can.

Hey Charles. So Howard, I just want to drill in a little bit on the margin. It sounds like this was largely due to the higher component mix. Would you expect that to reverse itself next quarter? And was there anything else in there that was a heavy weight on what drove the gross margin off a little bit this quarter?

No, Alex. I think as I said, the subsystems and accessory business was higher this quarter. It grew quite frankly about 30% quarter over quarter, sequentially. So again, that, as you know, we've talked about it. Component subsystem business is at a lower margin than our complete server solution business. We do expect that our complete server solution business will continue to grow.

Okay. And just two quick follow-up questions here. Howard, on the tax rate you said 34% for Q1. What was the guidance for the year again? Was it back down to 30% for the year?

Yes. We said it would be around-- we said that if the R&D tax credit was put back in like it was in 2015, then we would see similar-- a reduction in our rate by about 7% in that December quarter. And that if it did happen that the rate overall for fiscal 2016 would be similar to fiscal 2015 or 2014, which is about 31%.

So we should effectively be modeling 31% for the year?

Again, it depends on the timing of the R&D tax credit.

No. I understand. And I'll just put this to Charles and to all three of you. You guys have talked about this $3 billion annual goal by fiscal 2017. It certainly seems like you're on that pace. Any reason you wouldn't be able to-- any change from that view?

At least at that pace, if not faster.

Okay. Good to hear, Charles. Thank you, guys.

Mark Kelleher, D.A. Davidson

Great. Thanks for taking the questions. Congratulations on a torrid top-line growth rate pace there. That growth though is putting some pressure on your balance sheet, as your working capital struggles to keep up. Is there a possibility or an element of increasing your pricing to slow the top-line down? How do you think about gross margin versus that torrid top line, versus your working capital that has to support that?

I think, Mark, as we talked about before, I think there's a wonderful opportunity for us to take market share right now. And we're going to continue to focus on that part of it. There is lots of opportunities for us to go out there and go get, as Charles talked about, our top-line growth and what have you. But again, and we'll be looking at that. And then we're looking at the working capital needs of the Company to properly support that.

All right. And just as my follow up, can you just give us an update on where you think the Grantley-Haswell cycle is? I know we ask you that every quarter. But we seem to be getting further along down that cycle. And maybe some thoughts further beyond to Broadwell coming up. How does that play out?

In terms of new products status, we feel are still in the ramp-up mode. And yes, the Broadwell is coming soon. So overall, I believe the product line advantage will continue to happen. And especially recently we announced a 1U 4 GPU and kind of 90-bay 4U JBOD that will be a strong product.

Okay. Thanks.

Aaron Rakers, Stifel Nicolaus

Yes. Thanks. A couple questions if I can as well. So first of all I want to-- I'd like to dive a little bit deeper in your enterprise traction. I know you talk about software and services being about 1% of total revenue. It looks like your direct business excluding the internet data center, grew a pretty solid 52% year over year. I also believe you said that you had 800 cumulative customers. I think last quarter it was 700. So can you talk a little bit more about the success you're seeing in the enterprise segment, what enterprise represents as a percentage of the total, inclusive of the software and services, and where you expect that to play out through the course of this year? What kind of contribution are you expecting for the full year from enterprise?

Yes. I mean our software and service program, all that starts from fiscal year 2014, but it's really grow much quicker in 2015. We grew almost triple last year. And looking forward, it looks like that growth rate will be continuing very fast. Because it's finally a very mature, very strong product. And that's why we are able approach more and more enterprise customers. And after two years' usage, they have been pretty happy with whatever total solution we provide. So we feel pretty positive in that area.

Any estimate of how-- what kind of percentage that could look like as you exit fiscal 2016?

Hopefully another triple this year. So hopefully it's 3%, for example, for software and service.

Okay. And can you talk a little bit? The second follow-up question is on the gross margin trajectory. What drives the differential between 16% versus the high-end of the band of 18%, and what you're assuming as far as the ramp of your utilization rate in the Taiwan facility?

Yes. Aaron, this is similar to what we talked about in the past. I think the levers for us for our gross margin are still there. Continue to ramp the Taiwan utilization for us, continue build the scale of our business, and so that improves our purchasing power, improves the mix of our total server solutions. And then as Charles mentioned, the services and support portion of our revenue, as that grows that provides us with margin uplift there, too. So these three levers are available to us and still we're trying to execute to those levers.

And do you still think you'll hit the 80% utilization rate in the Taiwan facility over the next quarter or two?

We do believe so.

Okay. Thank you.

Nehal Chokshi, Maxim Group

Thank you. I just want to revisit the balance sheet there, because that seems to be the crux of many bear arguments I've heard. And especially in this quarter, the accounts receivable did increase $100 million Q to Q, versus last year it increased only $20 million Q to Q. Albeit Q-to-Q revenue growth was $100 million for this June quarter, versus $50 million a year ago. But it still does not seem to compute. And I think there's some concern that you may have pulled forward some demand, or is looking to move inventory that may have been getting old. So can you just adjust that bear argument point blank?

This is Howard. Again, I don't believe that there is any pulled forward revenue, per se. It was a seasonally strong quarter. We have a lot of new opportunities out there to take advantage of, and we're leveraging on those opportunities, per se. How do I put it? The enterprise space is opening up to us, a lot of the market opportunities we talk about are opening up to us. And some of those customers do demand longer terms, and I talked about before, with regards to that. So again, our DSOs are affected by that.

Okay, great. Thank you. And then so if I may ask a follow-up question with respect to the enterprise model. For the service line, what's the pricing model of that? Do you target a percent of sales on that service there? And can you also comment on what you expect the operating margin profile for products being sold into these corporate data centers [for all] in terms of your overall margin profile?

Yes. It was software and services, of which (inaudible) probably the margin is much higher. However, overall our revenue only about 1% for fiscal year 2015, and for 2016 I hope it will ramp up to 3% or even more. So that one will be long-term growing, very positive factor. But here the percentage is still small, although faster growing.

Okay. Thank you.

Mehdi Hosseini, Susquehanna

Yes. Thanks for taking my question. I want to go back to the mix. It seems like your server business was pretty good. But the top-line upside was mostly driven by system and accessory. And if I were to compare your performance to the rest of the competitors this earnings season, it seems like you're gaining share. And I want you to help me understand what has enabled you to gain market share, if it is indeed a share gainer story.

And how should we think about the mix going forward? How should we think about the data center mix in the first half of the fiscal year 2016? And I have a follow-up.

Yes. I mean very good question. Basically we have a much better product, especially for (inaudible) application, we have a specifically optimized product for them. So the customer appreciates that. And also enterprise customers, they need on-site service. They need a (inaudible) for system management. Before we was pretty weak in that area. But now we've become much stronger. And we will continue to be stronger. So we are gaining enterprise segment kind of consistently now, and better products. I mean especially application optimizing.

And then how should we think about the mix into the first half of the fiscal year 2016, especially with the data center?

Data center indeed, it really depends on our production capacity. Kind of before our limitations are pretty much production capacity. So now with our building (inaudible), and just the grand opening yesterday, and another new building in the Netherlands, where it'll be ready to move in next month. So we have much more space, much more capacity for new data center business now. So if we like, we can grow that area much more aggressively than before.

Okay. And then moving on to the storage, what was the mix of next-gen storage this quarter, this past quarter? And how should we think about it looking forward?

For next-generation storage, our volume has been growing very consistently. I guess year-over-year we grew about 79% in total. So in terms of next-generation storage also about that percentage, because we grow for traditional storage and next-generation. I guess that percentage is pretty close.

So the next-gen storage was up almost?

Yes, guys. May I just elaborate on your question here actually for the Q4 versus Q4 of 2014 and 2015, actually the next-gen grew about 94% year over year, same quarter.

And is it still accounting for half of your overall storage?

Roughly a little less than half, for the fourth quarter.

Got it. Thanks so much.

Brian Alger, Roth Capital Partners

Good afternoon, everyone, and again congrats on what was a great quarter. I want to come to back to Mehdi's question with regards to the strength in the accessories business. The systems business was great. It was in line or a little bit better than what we expected. But I was really surprised by the subsystems and accessories. Can you maybe elaborate there in terms of what drove that growth, and where the demand came from?

Yes. I think it goes in sync with what we talked about. The distributors are primarily the guys that buy the subsystem accessories business. You'll see a locked step kind of move with our distributor business and our subsystems and accessory business. So distributor business was, our channel business was very strong for us this quarter.

And given the geographic mix, I'd presume that that was distributors here in the US as opposed to Europe or Asia?

Yes.

Great, great. And then as we look at the systems business, the one area that I haven't heard you really talk about-- we've talked about servers, and we've talked about storage. What about networking? How's the networking moving? I know it's relatively new there. But is that something that's continuing to grow for us?

Yes. Our networking solutions is a part of our total solution. And that has been growing consistently, although not as fast as our storage. But long term, yes. That will be one of our focuses as well.

Great, great. Again guys, great quarter.

Rich Kugele, Needham & Company

Thank you. Good afternoon. A few questions. In terms of the issues that impacted you negatively last quarter from the poor crisis getting the chassis and the Taiwan program that had been delayed we assume-- should we assume from the revenue that all those issues were resolved and you were able to ship all your backlog?

Yes.

Okay. And when you look at storage, how much was it as an overall percent of revenue?

About 21%.

I know you don't want to talk about fiscal 2016 right now, but just directionally, do you think that it can continue to increase as a percent, or would you anticipate that the system side just broadly catches up and maybe it will stay where it is?

Yes, we continue introducing even better storage system. For example 4U 90-bay, and lots of other commission storage total solution. So I believe storage product line, in terms of percentage, will continue to grow.

Okay. Then just lastly just to understand the timing of the capacity coming online and the potential impact to gross margin, should we assume that the first half of fiscal 2016 sees a dip as that capacity comes online? Or can you bring it on linearly as the revenue needs it?

We will control the margin. Kind of like, we have a strong demand from big data centers, but only when we have actual capacity or [now] capacity, otherwise we are a little bit selective for customer.

Okay. Excellent. That's helpful. Thanks a lot.

And this does conclude the question-and-answer session of our conference call. I would now like to turn the conference back to Mr. Liang for any 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 fourth quarter and fiscal year 2015 conference call. We do appreciate your participation. You may disconnect at this time. Thank you.