Artificial intelligence server maker Super Micro Computer has reported lower-than-expected third-quarter revenue, citing a shortage of key components and concerns regarding the profitability of its new line of servers. As a result, the company’s shares have declined by 10% in pre-trading on Wednesday.
Super Micro, based in San Jose, California, builds powerful AI servers using chips from leading manufacturers such as Nvidia and Advanced Micro Devices. Despite the revenue setback, the company is optimistic regarding the fourth quarter and has forecasted revenue above analysts’ estimates, citing steady demand.
During an earnings call, analysts expressed concerns regarding the additional spending required to support the transition to a new generation of Nvidia chips that necessitate liquid cooling. They also questioned whether the new servers, set to be released later this year, would fetch high enough prices to boost Super Micro’s profit margins.
Notably, last month, Super Micro was added to the prestigious S&P 500 index, highlighting its expanding presence and industry recognition.
In a bid to gain market share, Super Micro is relying on its in-house liquid cooling technology for its servers. CEO Charles Liang assured analysts that while the company had paid a premium to secure supplies and build liquid-cooled servers quickly, the end customers would only face a minimal increase in pricing compared to air-cooled servers.
The company currently holds an inventory valued at $4.12 billion, a significant increase from $1.45 billion at the end of the previous fiscal year. Chief Financial Officer David Weigand explained that despite the impact on cash flow, the inventory is crucial for meeting fourth-quarter shipments.
Weigand further stated that Super Micro aims to maintain a gross margin range of 14% to 17% over the long term, despite analysts’ concerns that the quarterly forecast suggests margins below this target. The company expects fourth-quarter revenue ranging from $5.1 billion to $5.5 billion, surpassing analysts’ average estimates.
“If not limited by some key component shortages, we might have delivered more,” Liang expressed, emphasizing the company’s potential for growth.
In light of its positive outlook, Super Micro raised its annual sales forecast to a range of $14.7 billion to $15.1 billion, up from the previously stated $14.3 billion to $14.7 billion.
The company reported an adjusted profit of $6.65 per share in the first quarter, exceeding analysts’ estimates. However, the revenue for the quarter ended March 31 stood at $3.85 billion, slightly below estimates but in line with analyst expectations for gross margin.
Super Micro’s financial results and strategic goals shed light on potential future trends in the server industry. The increased demand for AI servers indicates the growing significance of artificial intelligence in various sectors, such as healthcare, finance, and technology.
With Super Micro’s adoption of liquid cooling technology, we can anticipate a shift in server architecture to optimize AI performance. This development highlights the ongoing need for enhanced cooling methods as server capabilities and workloads continue to evolve.
Additionally, the company’s ability to secure supplies and rapidly build servers demonstrates the importance of supply chain management and agility. As the server industry becomes more competitive, companies must develop strategies to secure critical components and ensure timely product delivery.
The rising inventory value implies Super Micro’s commitment to meeting future demand and scaling its operations. This dedication positions the company for future growth and industry leadership.
