Super Micro misses quarterly revenue estimates as inventory up, shares down 14%

FILE PHOTO: COMPUTEX Taipei technology trade show in Taipei

By Akash Sriram and Stephen Nellis

(Reuters) -Artificial intelligence server maker Super Micro Computer reported third-quarter revenue below estimates on Tuesday, hurt by a shortage of some crucial components and questions over the profitability of a new line of servers.

Shares of Super Micro, which have more than tripled in value so far this year, were down 14% in trading after the bell.

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

But on an earnings call, analysts peppered the company's leaders with questions over 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 push up Super Micro's profit margins.

The AI server maker was added to the S&P 500 index last month.

Super Micro is banking on its in-house liquid cooling technology for its servers to gain market share in a competitive industry.

CEO Charles Liang told analysts the firm had paid a premium to secure supplies to build those liquid-cooled servers quickly in the next few quarters, but said that end customers would pay only a "very minimal premium" for them versus older, air-cooled servers.

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

"It hurts our cash flow, but you know what, it doesn't matter because we need that inventory for Q4 shipments," Chief Financial Officer David Weigand said.

Super Micro aimed to stay in its 14% to 17% gross margin range over the long term, he added, despite some analysts saying the company's quarterly forecast implied margins below that range.

The company expects fourth-quarter revenue of between $5.1 billion and $5.5 billion, compared with average analyst estimates of $4.89 billion, according to LSEG data.

"If not limited by some key component shortages, we could have delivered more," Liang said.

The company raised its annual sales forecast to a range of $14.7 billion to $15.1 billion from the previously stated $14.3 billion to $14.7 billion.

Super Micro reported an adjusted profit of $6.65 per share in the first quarter, compared with analysts' estimates of $5.78 per share.

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

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

(Reporting by Akash Sriram in Bengaluru and Stephen Nellis in San Francisco; Editing by Tasim Zahid and Jamie Freed)