Server-maker and designer Supermicro has promised to improve performance, after missing its guided revenue and revealing its margins aren’t strong.
Investors already knew Supermicro wasn’t going to post great results for the quarter, after it warned that a customer requested changes to a big purchase and the work required to deliver mean it could not count around $1.5 billion of revenue in its next quarter. The company on Tuesday delivered those results and revealed $5 billion quarterly revenue, down $800 million compared to last year’s Q1 and far less than the $6-$7 billion it forecast. Gross margin was 9.5 percent, well below hardware-slinging peers like Dell and HPE.
On the company’s earnings call, CEO, president, and company chair Charles Liang said a customer caused the delayed revenue recognition “due to last-minute configuration upgrade … with expanded volume.”
“This shift [was] largely caused by the complexity of these new GPU racks, which requires intricate integration, testing and validation, making them more time consuming to source and build,” he said.
Liang also said that during Q1 Supermicro landed “a strategic …large design win, which includes higher cost and a lower margin.”
The CEO explained the low-margins as a consequence of the work needed to “ramp a new mega-scale optimized rack platform” based around Nvidia’s GB300 rack-scale AI platform.
“So we had to make sure we ship exactly the best quality, the most reliable system to [the] customer. And that’s why we spend a lot of time to burn in our solution. And that’s why we build up such a huge capacity,” he said.
Investment analysts weren’t impressed.
On the company’s earnings call, Nehal Chokshi of Northland Capital Markets noted that Supermicro’s deal to build xAI’s “Colossus” cluster was also a low-margin gig and asked why the server-maker is again working on a low-profit project.
Jonathan Tanwanteng of CJS Securities weighed in, asking “How do you prevent that from happening again?” and “Have you seen the higher margins from customers where you maybe gave them better pricing … as you get follow-on orders and repeat business from them?”
Supermicro CFO David Weigand didn’t answer directly, saying the company continues to win market share and new customers.
“We’re very happy that the customers that we have brought into the Supermicro portfolio … is really adding a lot of name value to our brand,” he said. “And so that’s what we’re very pleased about. We’re gaining market share. There’s no question about that.”
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Tanwanteng came back for another bite, asking how Supermicro can avoid having to again shift revenue to a different quarter due to project delays.
Weigand responded by saying large and complex projects sometimes go awry. “Take a look at the thousands and thousands of parts we have to bring together to build our solutions,” he said. “And also on the customer side, the things that they’re having to do to get their data centers ready, there’s a lot of logistics that have to take place. It doesn’t always line up perfectly with our quarter ends. So we’ve said, as we continue to take large customers, there’s going to be things beyond our control.”
The CFO then pointed to Supermicro’s revenue growth in the last two years, which saw it go from $7 billion to $22 billion.
“Now did those quarters all line up perfectly according to our plan, our annual plan?” he asked. “Not always. But the trend is still there. And we’ve increased our revenues as well as our profits. And that’s what we intend to continue to do.”
Indeed, Liang forecast revenue of “at least $36 billion” for FY 2026, and said investments in manufacturing facilities mean Supermicro will have capacity to satisfy $100 billion in annual orders, many of them for the company’s modular “Data Center Building Block Solutions” that the CEO said will sell at better margins.
But despite being optimistic that Supermicro can make more money, the CEO and CFO both said the company is by nature conservative about its guidance, and while it aims to improve margins isn’t yet willing to offer formal guidance on when or if they will improve, and to what extent.
Investors’ immediate reaction to Supermicro’s results saw its share price sink ten percent, but it’s worth pointing out that the company’s stock is up 65 percent over its price in November 2024. So it’s doing plenty right as it rides the AI rollercoaster. ®
