Annabelle Stephenson
Super Micro Computer Inc., a prominent player in the computer and server solutions industry, has been making incredible strides in recent times, reminiscent of the growth witnessed by chip giant Nvidia. Investors are naturally curious about the sustainability of this boom in the artificial intelligence (AI) sector. This concern holds even more significance for Supermicro, as it operates in a field that can be easily commoditized.
Unlike Nvidia, which designs its own highly sought-after graphics processing units (GPUs) for AI applications, Supermicro focuses on producing adaptable servers that support these GPUs.
However, Supermicro's CEO, Charles Liang, has assured investors that this extraordinary growth is only the beginning. During a discussion with Wall Street analysts, Liang expressed confidence in the company's future, citing strong quarterly results and a promising forecast. In the second quarter, revenues surged by an impressive 103%. With total second-quarter revenues reaching $3.66 billion, Supermicro exceeded its annual revenues for the entire year of 2021, which amounted to $3.5 billion. The third financial quarter, set to end in March, is expected to generate revenues ranging from $3.7 billion to $4.1 billion. This marks a remarkable 204% growth at the midpoint value. Looking even further ahead, Supermicro has revised its revenue forecast for the financial year 2024 to a range of $14.3 billion to $14.7 billion, representing a 103% growth at the midpoint value.
"Demand is outstripping supply," emphasized Liang during the discussion with analysts. "If we had more supply, we could meet the soaring demand." Supermicro has established strong partnerships with leading semiconductor companies in Silicon Valley, including Nvidia, allowing the company to deliver its servers equipped with the latest chips faster than its competitors. Another advantage stems from Supermicro's impressive "building-block" architecture. David Weigand, Supermicro's CFO, explained, "We are unrivaled in terms of speed due to our product design. This enables us to swiftly adopt new technologies offered by various vendors, positioning us as the first to introduce comprehensive solutions to the market."
Although some analysts raised concerns about declining gross margins, Weigand asserted that Supermicro occasionally adopts competitive pricing strategies to attract new customers and increase market share. "We are growing rapidly. To achieve that, we must gain market share, and sometimes we are willing to take the risk of being more competitive on pricing," Weigand stated. He also highlighted two undisclosed customers who played a substantial role in Supermicro's revenue for the quarter: one being a major data center client, potentially Meta Platforms Inc., accounting for 26% of revenues, and another customer contributing 11% of revenues.
Throughout the discussion, Supermicro experts emphasized the superiority of their systems over major competitors, without specifically naming Dell Technologies, Hewlett Packard Enterprise, IEIT Systems Co. Ltd., and Lenovo. IDC data confirms that Supermicro has gained market share over the past year, surpassing Lenovo to become the world's fourth-largest server vendor in the second quarter of 2023.
Undoubtedly, concerns about the longevity of this growth are natural among investors. Companies in the computer and server manufacturing industry have encountered similar worries in the past. Just like Sun Microsystems emerged as the preferred server provider during the dot-com boom, Supermicro is gaining a prestigious position in the era of artificial intelligence. However, it must remain vigilant to avoid a similar downfall.
