The Growth and Sustainability of Supermicro
Super Micro Computer Inc., a server manufacturer known for integrating Nvidia’s chips, is experiencing growth rates comparable to the chip giant itself. This impressive performance has sparked investor speculation on the longevity of the ongoing AI boom.
Unlike Nvidia, Supermicro operates in a commoditized business. While Nvidia designs its exclusive graphics processor chips, highly sought after for AI applications, the server hardware required to run them can be interchangeable.
During a recent call with analysts, Supermicro’s CEO, Liang, expressed confidence in the sustained growth of the company. The second-quarter revenue soared by 103%, surpassing the total revenue for the previous fiscal year. Liang expects the boom to continue for many quarters, if not years.
For the fiscal third quarter, Supermicro projects revenue between $3.7 billion and $4.1 billion, signifying a growth rate of approximately 204% at the midpoint. Furthermore, the company raised its revenue guidance for fiscal-year 2024 to a range of $14.3 billion to $14.7 billion, representing a 103% increase at the midpoint.
Liang emphasized the strong demand for Supermicro’s servers, stating, “The demand is stronger than supply. With more supply, we might be able to ship more.” Supermicro’s close relationships with semiconductor companies, including Nvidia, enable them to deliver servers with the latest chips faster than their competitors. Additionally, the company’s building-block architecture contributes to its market agility.
Factors to Consider
During the call, some analysts expressed concerns about falling gross margins. Supermicro’s CFO, Weigand, mentioned that the company occasionally adopts competitive pricing strategies to attract new customers and expand its market share.
Weigand also highlighted two major customers, without disclosing their names, who accounted for a significant portion of Supermicro’s revenue in the previous quarter. One large data-center customer represented 26% of revenue, while another contributed 11%.
Supermicro executives explicitly emphasized the advantages of their systems over competitors like Dell Technologies, Hewlett Packard Enterprise, IEIT Systems Co. Ltd., and Lenovo. In fact, Supermicro has successfully gained market share over the past year, surpassing Lenovo and becoming a leading player, according to IDC.
Conclusion
With remarkable growth and increasing market recognition, Super Micro Computer Inc. is fast becoming a favored server vendor in the AI era, much like Sun Microsystems during the dot-com boom. However, as with any rapid ascent, investors are beginning to question how long this trend can be sustained.