Super Micro misses quarterly revenue estimates as stock rises, shares fall 10%

(Reuters) – Artificial intelligence server maker Super Microcomputer reported third-quarter revenue below estimates on Tuesday, hurt by shortages of some critical components and questions about the profitability of a new line of servers.

Shares of Super Micro, which have more than tripled in value so far this year, fell 10% in advance trading on Wednesday.

The San Jose, Calif.-based company, which builds powerful AI servers using chips from Nvidia, Advanced Micro Devices and others, expects fourth-quarter revenue above estimates as it expects flat demand.

But on the earnings call, analysts peppered company leaders with questions about spending to support the transition to a new generation of Nvidia chips that require liquid cooling and whether those new servers, which will hit the market later this year, will command high enough prices. To raise Super Micro's profit margins.

The artificial intelligence server maker was added to the S&P 500 last month.

Super Micro relies on its internal liquid cooling technology for its servers to gain market share in a competitive industry.

CEO Charles Liang told analysts that the company paid a premium to secure supplies to build those liquid-cooled servers quickly in the next few quarters, but said end customers would only pay a “very small premium” for those older air-cooled servers. Servers.

Inventory at the end of the March quarter was $4.12 billion, up from $1.45 billion in the fiscal year ending June 30, 2023.

“It hurts our cash flow, but you know, it doesn't matter because we need that inventory for fourth-quarter shipments,” CFO David Wiegand said.

He added that Super Micro aims to stay within the 14% to 17% gross margin range over the long term, although some analysts said the company's quarterly forecasts implied margins below that range.

The company expects fourth-quarter revenue to range between $5.1 billion and $5.5 billion, compared to analysts' average estimate of $4.89 billion, according to LSEG data.

“If only some key ingredients were missing, we could have provided more,” Liang said.

The company raised its annual sales forecast to $14.7 billion to $15.1 billion from the previously announced $14.3 billion to $14.7 billion.

Super Micro reported adjusted earnings of $6.65 per share in the first quarter, compared to analyst estimates of $5.78 per share.

Revenue for the quarter ended March 31 was $3.85 billion, compared to estimates of $3.95 billion, according to LSEG data.

Gross profit margin for the three-month period was 15.5%, down from 17.6% a year earlier, in line with analyst expectations.

(Additional reporting by Akash Sriram in Bengaluru and Stephen Nellis in San Francisco; Editing by Tasim Zahid and Jamie Farid)