Q3 2026 Earnings Call — May 5, 2026
Analyst Ananda Baruha (Loop Capital): Thanks for taking the question, and congrats on the progress with the gross margin. It's great to see that. I guess the first one would be, just on some of the stuff that's been sort of press released by you guys throughout, sort of during the quarter. I guess specifically, could you give us an update on the indictment? Any more insight to any company employee involvement? Do you think you'll have to restate earnings? Are you on track to file your 10-Q? Things like that. And then I guess part and parcel with that, on the board investigation that you guys announced. If you could talk to the opportunity that that could have to strengthen the organization, you know, sort of, and what those opportunities might be, that would be awesome. And then I have a quick follow-up. Thanks a lot.
Executive Name: The company was surprised and disappointed to learn of the alleged diversion to China of certain of our products. As we've previously announced, we're taking this matter seriously. The alleged conduct would violate our export control policies and procedures, and we're fully cooperating with the U.S. government to address this situation. In addition, our independent directors have retained an outside law firm, Munger Tolles & Olson, and a forensic firm, Alex Partners, to conduct an independent investigation into these events. The investigations are ongoing and we can't give you any final information
at this time.
So based on what we know so far, though that could change as the investigation progresses, no one from the company other than those named in the DOJ indictment was involved. As to your second question on restatement of earnings, based on everything we know at this moment, and considering the independent investigation is ongoing, we do not believe we will need to restate. And lastly, on the 10-Q, again, the independent investigation is ongoing, and any filing will be subject to BDO review. But based on what we know at this moment, we are planning to file our 10-Q and are preparing accordingly. And I think your last comment about, you know, certainly we will be taking to heart the results of the independent investigation, and we will look at that as an opportunity to grow and strengthen.
Analyst Ananda Baruha (Loop Capital): I guess my follow-up would be sort of dovetailing off of that. You guys are probably aware, you know, sort of one of the top questions on investors' minds is, in lieu of these sort of aforementioned dynamics, you know, is there potential for customers to get, you know, a little skittish and move away to other server vendors, you know, Gen AI server vendors. So to the degree that you have any context that you could offer there, that would be greatly appreciated. And that's it for me, thanks.
Executive Name: Indeed, we are growing our customer base. Like last few quarters I shared, now we have many more large customers and mid-sized customers. And from our experience, working with customers, communicating with customers, most customers indeed feel pretty solid to continue our business and continue to grow together. So at this moment, I personally don't feel a negative feeling.
Analyst MP (JP Morgan): Hi. Thank you for taking my question. For my first one, I just wanted to ask, in your last call, you mentioned DCBBS contributions to profits during first half of about 4%. Can you please update how did it track during the quarter and how much of a driver was that relative to gross margin improvement that you saw during the quarter? And I have a follow up.
Executive Name: Yeah, our DCPPS indeed continue to gain more and more attraction from our old customer and new customer. So it's a very good value add to our hardware and also enhancing our relationship with the customer. So the customer who use our DCPBS continue to grow, and we believe this growth will continue strongly in next two years. I personally expect at least 20% of our net income will be from DCPBS, including the management software.
Analyst MP (JP Morgan): Thank you. And then for my follow-up, I just wanted to ask on capacity additions which you've done during the quarter. Can you please help us quantify the revenue capacity that it helped to add for the company? Thank you.
Executive Name: Again, our capacity now is very huge, but we continue to grow our capacity because we like to make sure ourselves ready for a new generation of data center need for our industry. For example, a much higher density in power in computing density and also in photonics technology and new generation of switch. So we are preparing all of that and some order new facility indeed was paired with clean room so to make sure we are able to provide exactly the base liquid cooling, the base communication bandwidth, and minimize the power consumption for the new generation data center need. So although our capacity is already big, but we continue to build more capacity.
Analyst Victor Tu (Raymond James): Hi, guys. Thanks for taking the question. I just wanted to follow up on the first question that was asked. Does the investigation around the indictment potentially impact your relationship with NVIDIA, subsequently your allocation or supply of GPU and other components? Because I think that's another really frequent point of concern that we get from clients these days is, you know, how that impacts your relationship and, you know, whether or not that that's the dynamic there has changed at all.
Executive Name: Our relationship with vendor have been a very long time, right? Including Nvidia, AMD, Intel. So at this moment, we feel our partnership stays strong. If not stronger, at least as strong as before. And we continue to work together for lots of new projects. So we also share with our vendor a few improved individual cases. So I hope they are not impacted, basically.
Executive Name: Yeah, I mean, our understanding is that there's been no change in allocation.
Analyst Victor Tu (Raymond James): And just a quick follow-up. The investments that you previously noted that you made in engineering support and services, have those mostly kind of peaked now? And, you know, is that contributing to the margin expansion at this point?
Executive Name: Indeed, our service business, including a data center planning, designing or deploying or out of view of service container to grow. So we continue to grow that service team, consulting team and revenue continue to grow. Yes, in this segment of profit is much better than our average hardware for sure. Yeah, but I would say it in no way has peaked. So, I mean, it's really, we're just gaining traction.
Analyst Asia Merchant (Citi): Oh, great. Thanks for taking my question here. If I could just, the supply constraints, there's been a lot of talk about, you know, CPU-based shortages. The guide that you're providing, are you constrained in any components here? And would there be a number, you know, if these supply issues were resolved? Basically, were you constrained by supply? And then if I can squeeze in one more as well on the data center, clearly you're seeing traction here. You know, relative to where you were last quarter when it was just starting to kick through, can you help us understand what kind of customers if you're seeing any change in the customers, you know, whether it's from a vertical perspective or a geography perspective, or you're seeing traction with these data center building block solutions. Thank you.
Executive Name: In terms of shortage, I believe it's a global common problem. So in last six months, as you know, on the memory, SSD price grow so much, double, triple, more than triple. And some CPU shortage, especially from Intel. So, and also even some GPU shortage, right? So we, like other competitors, other system companies, yes, we suffer a lot from those shortages. And those shortages may continue for, we don't know how long, like memory and SSD. But we have a very good relationship with our vendor, so we continue to work with them and try to again more long term support. As to a customer base, yes, as I shared last time, we start to get more, many more enterprise customers globally and near cloud. So we add more large customers and we add lots of mid-size and small-sized customers. And we will continue in this direction to support more customers.
Analyst Catherine Murphy (Goldman Sachs): Thank you for the question. I was wondering if there was any one-time items that impacted gross margins in the quarter and anything you could share there specifically to quantify. I think you mentioned tariffs, expedite fees, and then inventory reserve charges. That would be helpful and then I have a quick follow-up.
Executive Name: With the tariffs, you know, as you know, were reduced by the supreme court and there were some replacement tariffs that came in so we are hopeful that tariffs will be down on a net basis going forward. Regarding expedite fees, we had a very large deployment in our March quarter which ended up incurring a lot of expedite charges, so we did those did not recur in the March quarter, so therefore we expect that to be incrementally up going forward as to the supply constraints, you know as Charles mentioned, it was especially troublesome in the last six months, but we expect some challenge going forward, but not like we incurred over the last six months.
Analyst Catherine Murphy (Goldman Sachs): And then in terms of just thinking about the revenue miss in the quarter being related to a delivery that was delayed because of customer readiness and that deal was contemplated in your prior guidance for a margin benefit that was modest quarter over quarter. Was that deal that flipped or was otherwise delayed a drag on consolidated gross margins? And how should we think about the impact to margins as the revenue from that deal gets recognized in the coming quarters here?
Executive Name: So we think that some of the large deals that we talked about in the past have been incrementally beneficial to Supermicro because of our reputation, the reputation that it brings for us in deploying large-scale installations to some of the best sites in the world. And so what we've noticed now is that we're, as Charles mentioned, we're not only getting more larger engagements, which gives us a diversified customer base, but we're also getting better margins from those sales. And so we actually had more diversification this quarter, and we see that going into the June quarter as well. So we think on that basis, some of the strategic decisions that we made on large installations have been beneficial.
Analyst Rupalu Bhattacharya (Bank of America): Hi. Thanks for taking my questions. I've got two. The first one is a clarification on revenues and gross margins. David, you mentioned that there was some push out of revenue into future quarters. Can you help us quantify how much of that is coming back in in the December quarter versus how much will be in future quarters? And on the margin side, can you help us clarify how you're thinking about the margin decline from fiscal 3Q to fiscal 4Q? I think you guided 8.3% gross margin on higher 11.8 billion of revenue. So what are some of the factors impacting gross margins between fiscal 3Q and 4Q? And I will follow up.
Executive Name: Regarding the deferred revenue, it really comes down to, you know, when the customers are ready and when their data centers are ready. So, you know, we're always optimistic that we can ship right away, but that sometimes depends on customer readiness. So we have to wait and see, you know, if, you know, how much lands in the June quarter and how much lands in the September quarter. As to margins, our margin mix is determined by which customers that we sell to and which products we sell. So that's really the biggest dynamic in affecting our margins. So therefore, what we see is a good upward trend to that 8.2 to 8.4 range, but it will depend on which customers ultimately we sell to.
Analyst Rupalu Bhattacharya (Bank of America): Can I ask a follow-up on working capital? In the past, when we've had GPU transitions, you've had to spend some working capital and time and money as customers qualify these new racks. So I'm thinking as NVIDIA releases new GPUs and when the transition happens from the Oberon rack to a new Kyber rack, how are you thinking about your working capital needs? And is there a chance that you might have to come to the capital markets again to raise capital for working capital? So just your thoughts on investments required as new GPUs and new rack designs come out. Thank you.
Executive Name: Basically we are diversifying our customer base and also improving our total value. Now we have more and more partnership that we not just build an AI server then not just the storage but we have customer deployment and build a whole data center with DCPBS total solution so indeed our business will be more diversified and more kind of smooth slides in terms of revenue dynamic and also profit margin change. In terms of those concerns, we are improving in a very positive direction now, quarter after quarter, basically.
Executive Name: Yeah, so roughly what I would say is I always hope that we need to go back to the markets for more money because that if we grow a lot. But if we grow more stably, our capital should be pretty enough. So it depends on how fast our growth rate is. If we try to double again revenue, then we may need some more help in terms of capital. But if we grow a little bit humble, then I believe we are pretty enough. Because now our business model is improving.
Analyst Nihal Chokshi (Northland Capital Markets): Hey, thank you, and congratulations on a strong gross margin. Charles, you mentioned that over the next two years, targeting 20% to data center building box solutions, 20%. Was that gross profit or was that revenue?
Executive Name: Got it. Okay. Very good. And I can't remember, David or Charles, you gave a percentage for a dollar number of DCBBS in the quarter of the... Can you just repeat that again real quickly?
Executive Name: We didn't give that percentage out, Nehal, but our gross margin did increase on our data center sales, but I don't have the percentage of our gross profit that that represented. When the DCPBS percentage continue to grow, we may quickly provide the kind of percentage change.
Analyst Nihal Chokshi (Northland Capital Markets): Okay. And so thinking about the significant improvement in gross margin, would you look at that more towards DCBBS ramp or more towards a reduction in your 10% customer going from 63% to 27% from the December to March quarter?
Executive Name: I guess there are two factors will continue to improve our gross margins. One is DCPBS solution. With that segment, our profit margin did most of the time at more than 20%. And the other segment is enterprise customer focus. We start to grow minimal enterprise customer and we will continue that direction. So that will improve our gross margin and net margin as well.
Analyst Nihal Chokshi (Northland Capital Markets): Okay, and then included in the guidance is the expectation that this customer has 27% of revenue and the current quarter will continue to be a 10% plus customer?
Executive Name: Yes, we will have many more neocloud kind of mid-sized cloud customers and even small-sized cloud customers. And for sure, we will continue to support a large cloud customer as well, but more near cloud, small cloud, enterprise cloud. So overall, our margin will continue to improve.
Analyst Neil Young (Niedermann Company): Hey, this is Neil Young. I'm for Quinn Bolton. Thanks for letting me ask a question. So I was hoping you could touch on maybe what drove, you did a little bit, but maybe touch on what drove the strong quarter over quarter increase in enterprise. And then, you know, are you expecting to see healthy growth from enterprise again here in the next quarter and through fiscal year 27? Or, you know, should we think about the revenue split by channel more closely reflected in 2Q? And then I have a follow-up. Thank you.
Executive Name: We don't provide that detail, but yeah, that direction is there very strongly. I mean, improve many more enterprise customers, and we see lots of customers really like to work with us. And then at the same time, DCPPS help us to engage with more and more neocloud and enterprise AI data center customers. So long term, we feel pretty comfortable in this direction.
Analyst Neil Young (Niedermann Company): Okay, thanks. That's helpful. And then just wanted to go back to gross margin one last time. Can you help us think about sort of what level is sustainable, you know, as we do look into fiscal year 27 as it seems like large AI deployments will most likely, you know, trend towards being a bigger mix of revenue in the coming quarters? Thanks.
Executive Name: We believe we are continuing to grow in a very healthy way because we are growing customer base. We are growing product line. We are growing total solution, including software and service. So we are getting to a much mature, much high value partner to the market.
Analyst John Tenwantang (CJS Securities): Hi, thank you for taking my questions and really nice quarter. I was wondering if you could just address a little bit more on the export violation issue and if that might impact your ability to finance growth or the cost of finance growth going forward. And I don't know if you talked about the cost of remediation or addressing the violations, preventing them from happening again. But if you could help disclose that, that would be helpful as well.
Executive Name: I think I'll go back to the comments that I made earlier that you know that you know we the company was not named in this, and so, therefore, we you know we take these things very seriously, but we and we're conducting our own internal investigations, you know and I won't I don't want to add any more to that. And also kind of based on what we know so far, I know that could be a change as the investigation process. No one from the company other than those name in the DOJ indictment was involved. So we have a very good confidence with our integrity.
Analyst John Tenwantang (CJS Securities): Perfect. Thank you. And then I will follow up if I could. You mentioned record backlog and storm orders, and I was wondering what that indicates heading into the back half of this calendar year. Just from a growth perspective, number one and number two, if the supply environment can support growth over the first half.
Executive Name: Basically we are fast growing company as you know, so we can grow much faster if we accept the whole margin business. So we try to be balanced in between the growth and the growth margin and net margin. So basically we are in good shape. I would also say we can control and decide the ratio of the balance.
Analyst Mark Newman (Bernstein): Thanks for squeezing me in, and congrats on the gross margin. On the gross margin and the mix, it sounds the gross margin rebound is driven partly by some of these, what do you call it, expedition charges reducing, but also sounds like, if I get it right, the enterprise mix is also helping. I wanted to ask, just to clarify if that's right, and within enterprise, is that AI server or is this more traditional server? I have another question also on the revenue as well. Thanks.
Executive Name: Indeed, both. Kind of for AI enterprise, I mean, a lot of genetic AI kind of influencing application. So we see a very strong demand there. And for traditional server and storage, even IoT, we also start to greatly support and expand this market. And we see a very good progress. So we will continue overall enterprise of business.
Analyst Mark Newman (Bernstein): Okay, great. And then on the revenue, it sounds like the reason for the slightly light revenue was this 63% customer last quarter now pushed out a little bit, which is, I believe, a 27% customer. As that customer comes back, presumably if that customer rebounds a little bit because some of that revenue has been pushed out, is that not going to be a bit of a drag down on the margins in the coming quarters? And also just one more quick question. You mentioned record backlog. Any clarity on that? I didn't hear any actual numbers on what the backlog is and how that's changed over time.
Executive Name: So we don't give out our backlog number. So we just make general comments about the fact that it's very strong. But we are, as I mentioned earlier, we've diversified our pipeline extensively. And so we have, as Charles mentioned, we have a number of large deals from new, you know, neoclouds and cloud service providers, which we are expecting to increase both our, you know, our footprint, our customer diversity, as well as our margins along with our DCBBS and enterprise expansion.
Executive Name: Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you all for your participation, and you may now disconnect.