Supermicro's Sales Quadruple as Cash Drains: Rapid Earnings Reaction
Record sales, thin margins, and a cash problem that's growing with the business.
Super Micro Computer (SMCI) announced that its fiscal first-quarter sales skyrocketed to $19.9 billion, a staggering quadrupling from $5.0 billion in the previous year. This remarkable sales surge prompted a 6% increase in the company's stock price during after-hours trading. The AI server manufacturer reported earnings of $1.6 billion for the quarter, although it continues to drain cash reserves.
For the fiscal year, SMCI anticipates a slowdown in the second half, with expected quarterly sales averaging around $18 billion, which is lower than the current quarter's pace.
One notable aspect of the report is the decline in gross margin, which dropped by nearly 5 percentage points from the prior quarter. The release does not provide clarification on the reason behind this decline, but it does mention that the presence of a limited number of large customers may contribute to reduced margins. Despite this, the company's profit surged due to the fact that operating expenses grew at a significantly slower rate compared to sales, which increased by 297% while expenses rose by only 67%.
The cash situation is a cause for concern. Receivables and inventory accumulated approximately $6 billion during the quarter, with customer deposits offsetting about half of this amount. Despite these deposits, the company still experienced a net loss due to cash outflows. Looking ahead, the company's full-year sales outlook suggests that the average quarterly sales in the second half will be around $18 billion, which is lower than the current quarter's sales.
Additionally, the next quarter's GAAP earnings per share (EPS) guidance is set at $1.71, slightly below the $1.75 earned in the current quarter.
Investors will want to monitor whether operating cash flow becomes positive as pending receivables come due. It is also crucial to confirm that the final quarterly filing matches the preliminary and unaudited figures mentioned in the release, as they were labeled as such in the announcement. For those seeking further investment guidance, The Motley Fool offers a range of premium services that may prove valuable.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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