By Akash Sriram and Stephen Nellis
(Reuters) – Artificial intelligence server maker Super Micro Computer reported third-quarter sales on Tuesday that were below estimates, hit by a shortage of some key components and questions about the viability of a new line of servers.
Shares of Super Micro, which have more than tripled in value so far this year, fell 14% in after-hours trading.
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 robust demand.
But on an earnings call, analysts peppered the company’s executives with questions about spending to transition to a new generation of Nvidia chips that require liquid cooling and whether the new servers coming later this year come to market will be high enough to increase Super Micro’s profit margins.
The AI server maker was added to the S&P 500 index last month.
Super Micro is relying on its in-house liquid cooling technology for its servers to gain market share in a competitive industry.
CEO Charles Liang told analysts that the company paid a premium to secure supplies to quickly build these liquid-cooled servers over the next few quarters, but said end customers paid only a “very small premium” for them compared to older, Air-cooled servers would pay servers.
Inventory stood at $4.12 billion at the end of the March quarter, up from $1.45 billion in 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 fourth-quarter deliveries,” Chief Financial Officer David Weigand said.
Super Micro aims to stay within its 14% to 17% gross margin range over the long term, he added, although some analysts said the company’s quarterly forecast implied margins below that range.
The company expects fourth-quarter revenue between $5.1 billion and $5.5 billion, compared with average analyst estimates of $4.89 billion, according to LSEG data.
“If we were not limited by the shortage of key components, we could have delivered more,” Liang said.
The company raised its annual revenue forecast to $14.7 billion to $15.1 billion from a previously reported range of $14.3 billion to $14.7 billion.
Super Micro reported first-quarter adjusted earnings of $6.65 per share, compared to analyst estimates of $5.78 per share.
Revenue for the quarter ended March 31 was $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)