Earnings Call Insights: Super Micro Computer, Inc. (SMCI) Q1 2026
Management View
- Charles Liang, Founder, Chairman of the Board, President & CEO, stated the quarter began with strong momentum due to “early phases of the dynamic AI growth trend” and positioned Super Micro as leading with “innovative, high-quality and value-driven solutions.” Liang highlighted the “NVIDIA Blackwell Ultra with GB300 product line now have more than $13 billion in back orders, including the largest deal in our 32-year history,” signaling substantial growth potential in hyperscale and enterprise deployments.
- Liang reported a revenue shift of approximately $1.5 billion from the September quarter to the December quarter, explaining “the complexity of these new GPU racks, which requires intricate integration, testing and validation…making them more time consuming to source and build.” He emphasized that production ramp-up has strengthened the growth trajectory and supported a higher full-year outlook.
- The company is preparing for “NVIDIA Vera Rubin and AMD Helios launches in calendar 2026” and expanding its product portfolio, while DCBBS (Data Center Building Block Solution) is becoming a “critical part of our business strategy, driving future growth and profitability.”
- Liang announced aggressive global expansion, including new facilities in the U.S., Taiwan, the Netherlands, Malaysia, and soon the Middle East, aiming to scale production to “6,000 racks per month, including 3,000 DLC racks within this fiscal year.”
- Liang projected, “we expect to ship at least $10.5 billion in the December quarter…we anticipate a sequential growth through fiscal 2026, giving us confidence in achieving at least $36 billion in revenue for the year.”
- David Weigand, Senior VP, CFO, Company Secretary & Chief Compliance Officer, stated, “Q1 fiscal year 2026 revenue was $5 billion, down 15% year-over-year and down 13% quarter-over-quarter compared to our guidance, of $6 billion to $7 billion.”
- Weigand highlighted, “AI GPU platforms, which represented over 75% of Q1 revenues continue to be the key growth driver.”
Outlook
- Management expects net sales in the range of $10 billion to $11 billion for Q2 fiscal 2026.
- GAAP diluted net income per share is projected to be $0.37 to $0.45 and non-GAAP diluted net income per share $0.46 to $0.54 for Q2.
- Gross margins are expected to be “down 300 basis points, relative to Q1 fiscal year ’26 levels.”
- For the full fiscal year 2026, the outlook has been raised to “net sales of at least $36 billion versus prior guidance of at least $33 billion.”
Financial Results
- Q1 fiscal year 2026 revenue was $5 billion.
- Enterprise channel revenues totaled $1.5 billion, representing 31% of revenues, while OEM appliance and large data center segment revenues were $3.4 billion, representing 68% of Q1 revenues.
- Q1 non-GAAP gross margin was 9.5% and non-GAAP operating margin was 5.4%.
- Q1 GAAP diluted EPS was $0.26 and non-GAAP diluted EPS was $0.35.
- Cash flow used in operations for Q1 was $918 million; negative free cash flow was $950 million for the quarter.
- At quarter end, cash position totaled $4.2 billion, with bank and convertible note debt of $4.8 billion, resulting in a net debt position of $575 million.
- The Q1 cash conversion cycle was 123 days, with days of inventory at 105 and days sales outstanding at 43.
Q&A
- MP, JPMorgan: Asked about drivers for increased revenue guidance—Liang answered, “NVIDIA Blackwell Ultra is getting available. So we are receiving more and more allocation from them and preparing for a huge volume to ramp up start from this quarter.”
- MP, JPMorgan: Inquired about DCBBS impact on gross margins and customer feedback—Liang said DCBBS has been “very welcome… profit margin will show a much higher in the industry for data center infrastructure, basically, the business is more than 20% profit margin.”
- Asiya Merchant, Citigroup: Questioned order pipeline and components contributing to outlook—Liang responded “GPU, for sure, contributed most revenue… we try to provide data center end-to-end solution, including DCBBS, including management software, on-site deployment and service.”
- Ananda Baruah, Loop Capital: Asked about conservatism in revenue guidance—Liang indicated “$36 billion is a very conservative number.”
- Ruplu Bhattacharya, BofA Securities: Sought clarification on manufacturing capacity—Liang said “our capacity is that $100 billion range now. But we try to be conservative and try to design carefully, burning carefully, make sure all the product we deliver… is exactly the same in the market.”
- Brandon Nispel, KeyBanc: Pressed on free cash flow contribution—Weigand explained “there are a lot of extra costs that go into that. And that we don’t — that we believe will actually prepare us for the upcoming quarters.”
Sentiment Analysis
- Analysts focused heavily on gross margin pressure, DCBBS ramp, and sustainability of demand, with a generally slightly negative tone regarding near-term profitability and cash flow.
- Management maintained a confident tone in prepared remarks, often stating “we are very excited” and “this is a truly unique time for Super Micro,” but responded with caution and some defensiveness regarding gross margin and cash flow concerns, using phrases such as “we are being a little conservative on the margin” and “we try to be conservative.”
- Compared to the previous quarter, analyst skepticism around margins and cash flow intensified, while management’s confidence around revenue growth and market share gains remained strong but slightly more defensive under questioning.
Quarter-over-Quarter Comparison
- Revenue guidance for fiscal year 2026 was raised from at least $33 billion to at least $36 billion, with the December quarter projected at $10.5 billion in shipments.
- Gross margins are forecasted to decline further in Q2, with management citing “higher cost as we ramp a new mega-scale GB300 optimized rack platform.”
- Analysts in both quarters pressed on margin sustainability, but this quarter saw increased scrutiny on free cash flow and working capital needs as revenues scale.
- Management continued to highlight DCBBS as a key growth and margin driver, but now positions it as central to long-term strategy and profitability.
- Tone shifted to more cautious optimism as volume growth outpaces margin improvement in the near term.
Risks and Concerns
- Management cited “the complexity of these new GPU racks” and “customer logistics factors” as drivers of revenue delays and margin pressure.
- Gross margin compression is expected due to “higher cost and a lower margin as we ramp a new mega-scale GB300 optimized rack platform” and increased engineering and service investments for large customers.
- Working capital and cash flow concerns were highlighted by a negative free cash flow of $950 million and inventory build-up in anticipation of higher Q2 demand.
- Unpredictable timing of large customer deployments and supply chain readiness were acknowledged as factors that “may impact quarter-to-quarter results.”
Final Takeaway
Super Micro’s leadership emphasized that robust AI demand, especially in advanced GPU platforms and DCBBS, is driving a significant uplift in revenue guidance for fiscal 2026. While ramping up new mega-scale projects introduces margin and cash flow pressures in the near term, management remains confident in the company’s ability to capture market share and transition to higher-value, higher-margin solutions as DCBBS matures and global capacity expands.