Super Micro Computer, Inc. (SMCI) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong revenue expectations, optimistic guidance, and strategic global expansion, which are positive indicators. Despite a temporary gross margin decline, long-term improvements are anticipated. The Q&A highlights management's confidence in overcoming supply constraints and expanding high-margin product lines. The focus on customer diversification and enterprise growth further supports a positive outlook. Although there are uncertainties around expedite costs and customer specifics, the overall sentiment remains positive due to strategic investments and market demand.
Key Financial Performance
Revenue Record Q2 fiscal year '26 revenue of $12.7 billion, up 123% year-over-year and up 153% quarter-over-quarter. Growth driven by rapid ramp and deployment of Rack Scale AI solutions and strong order strength from global large data center and enterprise customers.
Enterprise Channel Revenue $2 billion, representing about 16% of revenue, up 42% year-over-year and up 29% quarter-over-quarter. Growth attributed to increased demand in enterprise channels.
OEM Appliance and Large Data Center Segment Revenue $10.7 billion, representing approximately 84% of Q2 revenue, up 151% year-over-year and up 210% quarter-over-quarter. Growth driven by large data center customer demand.
Geographical Revenue (U.S.) U.S. represented 86% of Q2 revenue, increased 184% year-over-year and 496% quarter-over-quarter. Growth driven by strong domestic demand.
Geographical Revenue (Asia) Asia represented 9% of Q2 revenue, grew 53% year-over-year but decreased 49% quarter-over-quarter. Growth year-over-year due to regional demand.
Geographical Revenue (Europe) Europe represented 3% of Q2 revenue, decreased 63% year-over-year and 51% quarter-over-quarter. Decline attributed to weaker regional performance.
Non-GAAP Gross Margin 6.4% in Q2 versus 9.5% in Q1. Decline due to customer and product mix, higher freight, production, and expedite costs.
Non-GAAP Operating Expenses $241 million, up 18% quarter-over-quarter and up 6% year-over-year. Increase due to higher sales expenses.
Non-GAAP Operating Margin 4.5% in Q2 compared to 5.4% in Q1. Decline due to increased operating expenses.
Cash Flow Used in Operations $24 million in Q2 compared to $918 million used in the prior quarter. Improvement due to higher net income, offset by higher accounts receivable and inventory levels.
Inventory $10.6 billion in Q2, up from $5.7 billion in Q1. Increase due to preparation for continuing strength in Q3 shipments.
CapEx $21 million in Q2, resulting in negative free cash flow of $45 million for the quarter. Increase in capital expenditures for growth.
Net Debt Position $787 million in Q2 compared to $579 million in the prior quarter. Increase due to higher bank and convertible note debt.
Cash Conversion Cycle Improved from 123 days in Q1 to 54 days in Q2. Improvement due to better inventory and accounts payable management.
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Operating Highlights
AI solutions and Rack Scale Systems: Achieved record revenue of TWD $12.68 billion, reflecting 123% year-over-year growth. These solutions are driving the development of large and complex AI clusters.
Data Center Building Block Solution (DCBBS): Gained customer preference for quicker deployment and cost savings. DCBBS accounted for 4% of profit in the first half of FY26 and is expected to grow to double-digit contribution by the end of calendar 2026.
X14 and H14 solutions: Introduced preconfigured systems optimized for AI, cloud storage, and telco edge workloads, enabling rapid deployment.
Geographic Revenue Distribution: U.S. revenue represented 86% of Q2 revenue, showing a 184% year-over-year increase. Asia and Europe saw mixed results, with Asia growing 53% and Europe decreasing 63% year-over-year.
Customer Segments: OEM appliance and large data center segment revenue was $10.7 billion, representing 84% of Q2 revenue, up 151% year-over-year.
Global Manufacturing Expansion: Expanded production sites in Taiwan, Malaysia, Netherlands, and the Middle East to increase capacity and optimize costs.
Design for Manufacturing (DFM): Enhanced modularized subsystems and automation to improve yield rates and reduce costs.
Focus on AI and IT Infrastructure: Positioned as a leading AI platform and data center infrastructure provider, with strong customer demand for AI and IT solutions.
Revenue Guidance: Guided Q3 revenue to at least $12.3 billion and full-year FY26 revenue to at least $40 billion.
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Risk or Challenges
Gross Margin Pressure: The company is experiencing gross margin pressure due to customer and product mix, higher freight, production, and expedite costs, as well as tariffs.
Component Shortages: Ongoing shortages of key components like memory and storage are impacting operations and gross margins.
Supply Chain Challenges: The company faces supply chain challenges, including volatile pricing and transportation costs.
Customer Concentration Risk: One large data center customer represented approximately 63% of total revenue, indicating a high dependency on a single customer.
Geographical Revenue Decline: Revenue from Europe decreased by 63% year-over-year and 51% quarter-over-quarter, indicating challenges in that region.
Debt Levels: The company has a net debt position of $787 million, which has increased from the prior quarter, potentially impacting financial flexibility.
International Facility Expansion Costs: Costs associated with expanding international facilities in Taiwan, Malaysia, Netherlands, and the Middle East are contributing to near-term margin pressure.
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Guidance & Outlook
Revenue Guidance for Q3 FY '26: Net sales are expected to be at least $12.3 billion.
Revenue Guidance for Full FY '26: Net sales are expected to be at least $40 billion.
Gross Margin Outlook for Q3 FY '26: Gross margins are expected to increase by 30 basis points relative to Q2 FY '26 levels.
Capital Expenditures for Q3 FY '26: Expected to be in the range of $70 million to $90 million.
EPS Guidance for Q3 FY '26: GAAP diluted net income per share of at least $0.52 and non-GAAP diluted net income per share of at least $0.60.
AI and IT Infrastructure Demand: Demand for AI and IT infrastructure remains unprecedentedly strong, driven by the company's DCBBS solutions.
DCBBS Contribution to Profit: DCBBS solutions accounted for 4% of profit in the first half of FY '26 and are expected to grow to at least double-digit contribution by the end of calendar 2026.
Product Line Expansion: The company is expanding its DCBBS product line to include new categories such as transformers, next-generation power generators, and devices for energy backup and grid power replacement.
Global Manufacturing Expansion: New production sites in Taiwan, Malaysia, Netherlands, and the Middle East are ramping up to increase capacity and optimize cost structure.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What is the outlook for gross margins in the upcoming quarters?
A:Charles Liang stated that customer mix is improving quarter after quarter, which will enhance profitability. The GP300 product is maturing, reducing expedite transportation costs and tariff impacts. Overall, gross margins are expected to improve quarter after quarter.
Q:Is the company entering a period of gross margin expansion and OpEx dollar leverage?
A:Charles Liang confirmed that economies of scale will help improve costs, impacting both gross and operational margins positively. The DCBBS product line is also contributing to margin improvement.
Q:Why does the full-year guidance imply significant quarter-over-quarter moderation in Q4?
A:Charles Liang explained that the $40 billion guidance for FY '26 is a conservative estimate. Business is expected to grow, especially with the DCBBS product line attracting more customers.
Q:What is the revenue contribution of DCBBS and its impact on gross margin trajectory?
A:Charles Liang mentioned that DCBBS contributed about 4% to overall profit in the last 6 months and is expected to grow quickly. The product line has higher profit margins, contributing positively to overall gross margin trajectory.
Q:How are supply constraints affecting the $40 billion guidance?
A:Charles Liang stated that the $40 billion guidance already considers component price increases and supply constraints. If the shortage situation improves, revenue could exceed $40 billion.
Q:What investments are needed to expand DCBBS capabilities?
A:Charles Liang highlighted that the company has been investing in DCBBS for about 12 months, with 10 items currently available and 3-5 more items planned for introduction in the coming months. These investments aim to make data center solutions more complete and easier for customers to manage.
Q:What is the margin profile of DCBBS compared to other products?
A:Charles Liang stated that DCBBS has much higher gross and net margins, exceeding 20%, due to its unique and pre-optimized data center solutions.
Q:What is the impact of expedite costs, component cost increases, and shortages on gross margins?
A:David Weigand noted that costs were up in areas like transportation and expedite costs due to new technology ramp-ups. However, specific impacts on gross margins were not broken out.
Q:What are the key areas of component shortages, and how do they affect demand?
A:Charles Liang explained that component shortages are primarily due to growing AI and large data center demand. While costs are impacted, the shortages are a result of industry growth and do not significantly hurt the company.
Q:Who are the primary customers for DCBBS?
A:Charles Liang stated that DCBBS is suitable for all customers building data centers, regardless of size. The product offers a one-stop-shop solution, saving time and ensuring optimized performance.
Q:Does Super Micro plan to continue bringing power efficiency advantages to market faster than competitors?
A:Charles Liang confirmed that the company aims to bring total solutions to market earlier than competitors, leveraging its strong engineering background.
Q:Was the 10% customer the primary driver of the quarter's upside, and will they remain significant in the next quarter?
A:Charles Liang mentioned that the company has many large-scale customers, making it difficult to predict individual contributions. However, the customer base is becoming more diversified.
Q:What is the outlook for customer diversification and enterprise accounts?
A:Charles Liang emphasized the importance of diversifying the customer base and aggressively growing enterprise and midsized accounts.
Q:What is the status of the Vera Rubin and Helios systems from AMD?
A:Charles Liang stated that there is strong customer interest and some commitments for these systems. Delivery depends on AMD's readiness.
Q:What is the company's strategy for balancing large-scale and enterprise customers?
A:Charles Liang explained that the company is focusing on both large-scale and enterprise customers, aiming to grow its customer base and diversify revenue sources.
Q:What drove the higher other income this quarter?
A:David Weigand attributed the higher other income to increased interest income from growing cash reserves.
Q:Did the company utilize its accounts receivable factoring facility this quarter?
A:David Weigand stated that the facility was not used during the December quarter but has been utilized subsequently.
Q:Is the 63% customer a new or existing 10% customer?
A:David Weigand did not specify but mentioned that most business is done with repeat customers, while also adding new logos.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the impact of expedite costs, component cost increases, and shortages on gross margins. Additionally, they did not clarify whether the 63% customer is a new or existing 10% customer.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI cloud
AI cluster
AI cost
AI factory
CDU heat
CPU life
DCBBS focus
DCBBS preference
DCBBS product
DCBBS solution
DCBBS value
DFM manufacturing
DFM quality
East capacity
Financial Results
GP platform
GPU CPU
Helios solution
IR page
IR section
Inc Financial
Micro AI
Micro phase
Micro value
Netherlands Middle
building block
center infrastructure
component shortage
design manufacturing
focus enterprise
generation
integration
mix
power water
risk uncertainty
server storage
site
subsystem
tariff
term margin
water consumption
workload
SMCI Transcript
Super Micro Computer, Inc. (SMCI) Q2 2026 Earnings Call Transcript
Positive2-3
The earnings call reveals strong revenue expectations, optimistic guidance, and strategic global expansion, which are positive indicators. Despite a temporary gross margin decline, long-term improvements are anticipated. The Q&A highlights management's confidence in overcoming supply constraints and expanding high-margin product lines. The focus on customer diversification and enterprise growth further supports a positive outlook. Although there are uncertainties around expedite costs and customer specifics, the overall sentiment remains positive due to strategic investments and market demand.
Super Micro Computer, Inc. (SMCI) Presents at Barclays 23rd Annual Global Technology Conference Transcript
Neutral12-11
Super Micro Computer, Inc. (SMCI) Presents at Raymond James TMT & Consumer Conference Transcript
Neutral12-8
Super Micro Computer, Inc. (SMCI) Q1 2026 Earnings Call Transcript
Positive11-4
The earnings call reveals strong revenue growth driven by new product launches and a robust order pipeline, including high-profile customers. While there are concerns about negative free cash flow and a net debt position, the company is addressing these with strategic initiatives like DCBBS, which is expected to improve margins. The Q&A section provides confidence in revenue guidance and market leadership, further supported by positive analyst sentiment. Despite some uncertainties, the overall outlook is optimistic, suggesting a positive stock price movement over the next two weeks.
SMCI Slides
SMCI Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
