SMCI - NASDAQ

Good afternoon. My name is Abbey and I will be your conference operator today. At this time I would like to welcome everyone to the Super Micro Computer Incorporated Fiscal Quarter One 2023 Results Conference Call. [Operator Instructions] Thank you. Mr. Michael Staiger, you may begin your conference.

Good afternoon and thank you for attending Supermicro's call to discuss financial results for the first quarter, which ended September 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer, and David Weigand, Chief Financial Officer. By now, you should have received a copy of the news release from the Company that was distributed at the close of regular trading and is available on the Company's website. As a reminder, during today's call, the Company will refer to a presentation that is available to participants in the Investor Relations section of the Company's website under the Events & Presentations tab. We have also published management's scripted commentary on our website. Please note that some of the information you’ll hear during our discussion today will consist of forward-looking statements, including without limitation those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, and future business outlook, including guidance for the second quarter of fiscal year 2023 and the full fiscal year. There are a number of risk factors that could cause Supermicro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2022, and our SEC filings. All these documents are available on the Investor Relations page of Supermicro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts to ask questions. I'll now turn the call over to Charles.

Thank you, Michael, and good afternoon, everyone. Today, I am very pleased to announce another fast growing quarter and a great start to our fiscal 2023. Supermicro is finally ready to do a big jump, for Green Computing and for being the best IT Total Solution company. Here are some key highlights for the quarter. First, revenue for the first quarter of fiscal year 2023 totaled $1.85 billion, up 79% year-on-year; above our guidance range of $1.52 billion to $1.62 billion, with growth rate at about 10 times greater than the overall IT industry. Our fiscal first quarter non-GAAP earnings per share grew over 490% year-over-year at $3.42 compared to $0.58 a year ago. It was well above the high end of our guidance range of $2.07 to $2.32. It was achieved by our leading designs, innovative products, our IT Total Solution, and our strong global operations. Especially, the growing utilization of our Taiwan facility is improving our ability to meet demand and making higher operating margin. Our plug-and-play Rack-Scale Total IT solutions and GPU-based systems have resulted in triple-digit percentage growth year-over-year. Along with excellent results from storage and 5G verticals, we are making solid market share gains. Growth in our major geographies skewed to the U.S. at 70% of total sales this quarter, driven by ongoing design wins from some of the top tier technology leaders. They recognize and accept the strong value proposition of our Green Computing technology and Total IT Solutions. We are off to a great start for fiscal 2023, and we expect our unprecedented growth momentum to continue. We are comfortably delivering quarterly revenue in the multibillion-dollar range, supporting our ambition of reaching $20 billion in the near distant future with a focus on increasing our profitability. Based on our current demand and capacity, we are forecasting $1.75 billion revenue for this December quarter, supporting our $7 billion annual revenue target for fiscal year 2023. We continue see opportunities for share gains across our TAM, especially with strong demands for our rack-scale Total IT Solutions and accelerated compute platforms. Despite already having the broadest server and storage portfolio in the industry, we are expanding our product lines by 25% in supporting our future growth. These additional new products will specifically be optimized for: number one, high-end AI workloads; second, 5G telco applications; third, accelerated storage systems; and number four, specific technology partner and top tier customer engagements. For the first time, we are offering standard OCP-optimized platforms and rack products. We are able to leverage our unique Building Block Solution designs instead of spending huge additional engineering, production resources and hardware/software investment. Combining our hardware Building Block Solution, advancing software, security and service features, our Total IT Solutions are getting ever stronger. To address the growing demand of Total IT Solutions, our manufacturing capacity in both Silicon Valley and Taiwan campuses continues to gear toward delivering more L10, L11 and L12 rack scale systems, including our new liquid cooled solutions. We are on target to scale our rack scale production capacity to 3000 racks per month in U.S. in the near future. We are also preparing to expand our rack scale Plug-and-Play solution in Europe and in Asia soon. Furthermore, as the component shortages start to ease, our ability to deliver our best-in-class solutions will begin to accelerate, giving our customers even greater confidence in our ability to service their IT needs. From a systems level perspective, we are ready to launch a full line of next generation products with technologies across our key partner ecosystem. For Intel, we are engaged with many large opportunities with Intel’s upcoming Gen 4 scalable Xeon CPU codenamed Sapphire Rapids. We now have hundreds of early seeding engagements including several dozen early shipments. Similar programs have been executing with AMD, and we have seen very strong demand for our upcoming Genoa CPU based platforms. With respect to NVIDIA, not only do we have the most complete portfolio of systems supporting H100 GPUs, but we have also developed many brand new architectures for the leading Metaverse and Omniverse partners. At the upcoming Super Computing event, we will be showcasing many new systems supporting these latest CPUs and GPUs, including our next generation water-cooled rack scale plug and play solutions. We work closely with our customers, designing solutions that are both optimized for performance and efficiency, putting them on the path of Green Computing. From a financial perspective, Supermicro’s Green Computing solution lowers customer datacenter TCO while maximize performance per kilowatt, increase compute capacity per rack, lower facilities costs while add location flexibility, in particular to power constrained regions with higher power cost. We expect to see elevated demand for energy efficient rack scale solutions across the tier-1 and tier-2 datacenter ecosystems. Thus, we now have enabled our popular SuperBlades, Twin product lines and some of GPU product lines to be fully optimized for liquid-cooling solutions and free-air cooling datacenter environment. Soon, we will start to offer fully redundant liquid cooling on the system level similar to its air-cooled counterparts for even more peace of mind. If half of the IT industry adapts Supermicro’s Green Computing solutions or develops solutions as green as ours, together we can potentially save the industry up to $10 billion in electricity costs per year, which is equivalent of eliminating about 30 fossil fueled power plants. That is also equivalent to preserving eight billion trees for our planet. With planning in advance for green computing, indeed Green Computing can be free, with bonus! To summarize, we are emerging as one of the largest global suppliers of global IT solutions. There are some key factors that enable Supermicro to continue with its ability to make strong market share gains. First, our unique building block solution design methodology enables us to create optimized products from system level to rack-scale. Second, our IT Products Solutions strategy, including data center management software, security features, cloud stack and service, offers customers a peace of mind and quicker time to market while expanding our TAM. Our unique operation model, with business headquarters and campuses in U.S., Asia and Europe is pivotal in supporting these key growth drivers. Third, our Green Computing DNA helps our customers achieve much lower TCO while saving the Mother Earth. As I have mentioned earlier, Green Computing can be free with proper advanced planning, with a bonus that keeps paying back. With that, I expect our fiscal Q2 revenue will be in the range of $1.7 billion to $1.8 billion, and our fiscal 2023 should reach $6.5 billion to $7.5 billion. Looking ahead, I anticipate fiscal year 2024 revenue may reach the range of $8 billion to $10 billion considering the current economic headwind may last for many quarters. As we continue to gain IT market share with the best rack-scale Plug-and-Play IT Total Solutions, I believe we will soon become a $20 billion revenue company. Our business model has been optimized, our engineering teams are fully ready, and our worldwide campus production capacity and efficiency are now second to none. Let me not forget, I want to take a moment to thank our Super Micro employee teams, our suppliers, and our partners for their continued dedication to making Super Micro a market leader. Now I will pass the call to David Weigand, our Chief Financial Officer to provide additional details on the quarter.

Thank you, Charles. I'm pleased to report Q1 fiscal 2023 revenues of $1.85 billion, a 79% year-on-year and 13% quarter-on-quarter increase. Revenues exceeded our initial guidance range of $1.52 billion to $1.62 billion and our recently updated range of $1.78 billion to $1.82 billion. Our growth momentum continued with our rack-scale Total IT Solutions targeting growing markets and customers with accelerated GPU/AI workloads, software-defined storage and networking, public and hybrid cloud, and 5G/Edge/IoT Platforms. Our Green Computing Solutions helped us gain market share as customers valued both generating less carbon in our environment and reducing their operating costs. These growth drivers have resulted in accelerated revenues with expanding margins and operating leverage. In fiscal Q1, Super Micro again recorded strong revenues across all three of our market verticals demonstrating the value we bring to our end markets and customers. We achieved $840 million in our Enterprise and Channel vertical, representing 45% of Q1 revenues versus 51% last quarter, that vertical was up 16% year-over-year and 1% quarter-over-quarter. The year-over-year growth in this segment was driven by our new product offerings. Our OEM appliance and large datacenter segment achieved $921 million in revenues, representing 50% of Q1 revenues versus 44% last quarter. This vertical was up 268% year-over-year and up 28% quarter-over-quarter with strong growth coming from design wins from datacenter and OEM appliance customers. Our 5G/Telco/Edge/IoT Segment achieved $90 million in revenues representing 5% of Q1 revenues, which was the same as last quarter. This was also – this vertical was also up 58% year-over-year and 9% quarter-over-quarter. Our mix of complete systems and rack-scale Total IT Solutions has been increasing steadily. Systems comprised 92% of total revenues and was up 102% year-over-year and 16% quarter-over-quarter as we saw growing success with our high-value rack-scale Total IT Solutions for emerging applications. Subsystems/accessories represented 8% of Q1 revenues and was down 24% year-over-year and down 9% quarter-over-quarter as we prioritized our key customers with high-growth rack-scale applications. On a year-over-year basis, the volume of systems and nodes shipped as well as system node ASPs increased due to product and customer mix. On a quarter-over-quarter basis, the volume of systems shipped decreased while nodes shipped and system node ASPs increased again due to product and customer mix. During fiscal Q1, we observed strength in the U.S. market with U.S. representing 70% of revenues; Asia represented 14%, Europe 13%, and Rest of World 3%. On a year-on-year basis, U.S. revenues increased 131% as we gained market share with our advanced rack-scale Total IT Solutions for high-growth server workloads. Asia increased 3%, Europe increased 31% and Rest of World increased 78%. On a quarter-over-quarter basis, U.S. revenues increased 21%, Asia decreased 4%, Europe increased 5%, and Rest of World decreased 5%. The Q1 non-GAAP gross margin was 18.8%, up 120 basis points quarter-over-quarter from Q4 and up 540 basis points year-on-year due to price discipline, lower freight costs and leverage from higher factory utilization. Our Q1 gross margin demonstrates the success of our high-value rack-scale Total IT Solutions. Turning to operating expenses, Q1 OpEx on a GAAP basis increased by 4% quarter-on-quarter and 17% year-on-year to $127.4 million. On a non-GAAP basis, operating expenses increased 3% quarter-on-quarter and increased 16% year-on-year to $117.3 million. Our non-GAAP operating margin increased significantly to 12.5% for the quarter versus 10.7% last quarter and 3.7% a year ago, demonstrating both improvements in gross margins and operating leverage. Other Income & Expense was approximately $4.1 million in income primarily consisting of $7.8 million in foreign-exchange gains offset by interest expense of $3.9 million as compared to $4 million in FX gain and $2.9 million in interest expense last quarter. Interest expense increased sequentially as we reduced short-term credit lines while interest rates increased. The tax provision for Q1 was $38.9 million on a GAAP basis and $42.1 million on a non-GAAP basis. The GAAP tax rate for Q1 was 17.4% and non-GAAP tax rate was 17.9%. Our GAAP and non-GAAP tax expenses increased due to the higher level of pre-tax profits. Lastly, our share of income from our JV was a loss of $0.9 million this quarter as compared to a gain of $0.3 million last quarter. We delivered strong Q1 non-GAAP diluted EPS of $3.42 which was up 490% year-over-year and up 31% quarter-over-quarter and exceeded the high end of the original guidance range of $2.07 to $2.32 and the recently updated range of $3.05 to $3.20. The increases to earnings per share were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline and operating leverage. Turning to the balance sheet and working capital metrics compared to last quarter, our Q1 cash conversion cycle improved to 95 days versus 100 days in Q4, still above our target range of 85 days to 90 days. Days of inventory was 100, representing a decrease of seven days versus the prior quarter of 106 days as we managed our inventory more efficiently. Accounts receivable decreased sequentially by $98 million from strong collections, while accounts payable increased sequentially by $130 million due to the timing of payments to our vendors. Days sales outstanding was down by three days quarter-on-quarter to 39 days while days payables outstanding came down by four days to 44 days. For fiscal Q1, we generated positive cash flow from operations of $314 million versus cash used in operations of $25 million last quarter. The positive operating cash flow was due to higher profitability along with better management of inventory and working capital. Revenue growth was 79% year-over-year and 13% quarter-over-quarter, while inventory grew 47% year-over-year and 12% quarter-over-quarter. CapEx was $10.8 million for Q1 resulting in positive free cash flow of $303 million versus negative free cash flow of $36 million last quarter. The closing balance sheet cash position was $238 million, while bank debt was reduced to $250 million as we paid down $347 million in short-term debt during the quarter. We did not buy back any shares during the quarter and have $200 million in share repurchase authorization until January 31, 2024. Now turning to the outlook for our business, we are carefully watching the global macro-economic situation and supply-chain dynamics. For the second quarter of fiscal 2023 ending December 31, 2022 we expect net sales in the range of $1.7 billion to $1.8 billion, GAAP diluted net income per share of $2.54 to $2.81 and non-GAAP diluted net income per share of $2.64 to $2.90. We expect gross margins to be down 75 basis points to 100 basis points due to competition from a strong U.S. dollar and macro-economic conditions. GAAP operating expenses are expected to be approximately $133 million and include $11.8 million in stock-based compensation that is not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase in Q2 due to continued investments in R&D and higher personnel costs. We expect other income and expense, including interest expense to be a net gain of approximately $1.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 17.4%, a non-GAAP tax rate of 17.9%, and a fully diluted share count of 55.7 million for GAAP and 57.0 million shares for non-GAAP. We expect CapEx for the fiscal second quarter of 2023 to be in the range of $7 million to $10 million. For the fiscal year 2023 ending June 30, 2023 we are raising our guidance for revenues from a range of $6.2 billion to $7 billion to a range of $6.5 billion to $7.5 billion. GAAP diluted net income per share from at least $7.27 to a range of $8.50 to $11, and non-GAAP diluted net income per share from at least $7.50 to a range of $9 to $11.30. The company's projections for GAAP annual net income assumes a tax rate of 19.2% and a rate of 19.8% for non-GAAP net income. For fiscal year 2023, we are assuming a fully diluted share count of 57 million shares for GAAP and 58.4 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP EPS includes approximately $32.7 million in expected stock-based compensation and other expenses, net of tax effects that are excluded from non-GAAP diluted net income per common share. As we look ahead to the rest of fiscal 2023, we expect that our improved profitability together with good working capital management will lead to operating cash flow in line with net income. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms, design wins, market share gains and engagement with significant new global customers. Michael, we're now ready for Q&A.

Operator?

[Operator Instructions] Your first question comes from the line of Jon Tanwanteng from CJS Securities. Your line is open.

Hi, good afternoon everyone. Thank you for taking my questions and congratulations on a really, really impressive quarter. My first question is just looking at the guidance and I know you raised this, but the midpoint still suggests you're anticipating declining quarters on average for the rest of the year. Is that express function of – an expectation of perhaps with a recession or macroeconomic pressure on your clients? Or are you thinking of specific customer programs there at the midpoint or is something else? I know in the past, you've put in a cushion there for what has been supply chain constraint. Just help us understand what you're thinking within the brackets of this year going forward.

Yes, very good question as the macroeconomic condition is how to predict at this moment look like there will be some headwind for sure. But with the coming soon several rapid new technology from Intel, AMD, Genoa and NVIDIA H100, so there are lots of new opportunity for us whenever the market have a new technology, Supermicro [indiscernible] chance to gain mark share. So with that, indeed, I believe our business in next 12 months should be not too – not too much impact. And also our business automation like in the last few quarters I mentioned about our auto configurator, our online automation that will help ourselves to service customer better. And with those offset the new product, the better tool, I believe our next 12 months business won't be too bad.

Great, thank you for that. And then the second question just with the really strong cash flow you have in the quarter and an expectation for future cash generation, what are your priorities there for cash usage? I know you mentioned you still have that share repurchase program, which you didn't use. Are there any CapEx plans or should we be thinking of any other things you may want to use the cash to invest in?

So we haven't changed our CapEx allocation strategy. We still have a repurchase plan in place as market – and the board review that policy. And otherwise our CapEx for next quarter was listed as $7 million to $10 million and so we don't anticipate large increases in inventory.

And this year is, again, that's why I just mentioned so many new technologies coming. So we'd like to take this chance to continue to gain market share. So hopefully Supermicro [indiscernible] a $10 billion company and then $20 billion company. So we'll continue to focus on quickly growing the company market share and our position.

Got it. One more if I could. Did you see any weakness in the quarter from any end markets or customers or geographies?

Yes. Generally a little bit kind of signal we need to observe that, but again new product, new technology that will offset this macro economy weakness.

Okay, great. Thank you very much guys.

Thank you.

Your next question comes from the line of Nehal Choski from Northland Capital Markets. Your line is open.

Yes, thank you, amazing quarter, really impressive guidance shows strong visibility here. And I'm sorry I missed quite a bit of a conference call, so you probably already hit upon this, but what are you seeing on the supply chain side at this point?

Supply chain has been dramatically improved, as you may know, right. Three months ago, they have seen a shortage everywhere, but as of today, the shortage problem has been dramatically improved, so not much shortage at this moment. And we believe looking for growth in the coming quarters we won't have a shortage problem. After this, that won't be too bad and that's why we prepared to grow market share.

Okay, great. At what point in time does you actually see the supply chain shortage more or less evaporate?

Indeed since quickly improved in about last two months.

Okay, great. And then really incredible free cash flow generation, I haven't run through numbers yet to figure out how that was done given the strong growth. Can you just walk me through what was the driver of the strong free cash flow generation?

Sure, absolutely. You can see our cash conversion cycle came down and that was a result of, we were able to speed collections and also we did receive some advance customer payments and we'll have a little bit more color on that in our 10-Q, which should be filed in the next few days. But we received about $70 million in advance payments from customers, so that helped us out. But still our cash flow from operations greatly exceeded our net income.

Yes. In that one month or three months, I mean we have some cash pressure, major because global shortage, so we had to keep large amount of inventory, now inventory program have been improved because no more big supply chain challenge now.

Got it. Understood. Okay. And then Dave, did I hear you correctly that you expect free cash generation to be close to that non-GAAP net income for fiscal 2023?

Yes. Nehal, that's correct, because we have our – inventories are a little more reasonable now. And then what I mean by that is the supply – some of the supply chain issues we have our cash flows are a little more imbalanced and so we expect cash flows to be a little more in line with income.

Great. And then finally your updated low end of guidance implies and I think if we look at your prior low end of guidance implied that maybe you'd have a slightly negative year-over-year growth in the back half fiscal year 2023. Now this new updated guidance implies 10% to 15% revenue growth. So again, I'm sure you would stress this during the script, but what is driver of this improving growth outlook despite worsening macro that you're providing here at the low end of guidance by the way?

Again, the major reason is a macroeconomic condition. Because no one really know how long the economic headwind will last. So we try to be more conscious.

Yes, understood. I guess my point is that the updated low end actually implies an improved year-over-year growth outlook on the back half of the year. This is despite a worsening macro. So what are you guys seeing that's effectively driving a raise in your back half revenue growth expectations?

Yes, we really have – we have growth in all of our verticals, Nehal, and not only that but geographically as well. So as Charles mentioned, there's new CPUs coming out from AMD, from NVIDIA, from Intel, as well as relative new product launches. So we think that all of those, the momentum that we have in our verticals as well as the new product introductions is what gives us guidance to the numbers that we put up.

Excellent. Fantastic job. Thank you for taking my questions.

[Operator Instructions] Your next question comes from the line of Jon Tanwanteng from CJS Securities. Your line is open.

Hi, thanks for taking my follow up. I was wondering if you were seeing any kind of impacts on the sanctions on China by the U.S. if there are any. I know earlier in the quarter, there's NVIDIA news; I know a lot of companies got added to the entry list where any of those are customers. How should we think about the consequences of those actions?

Yes, we see some impact for sure and exactly how long that impact we are lasting, we still keeping watch.

Yes. So by the way, we didn’t have any customers that were added, however, as everyone knows the GPU sales became limited. China sales last quarter were less than 3%. So we don’t consider this to be a significant issue for us going forward.

Understood. Thank you. And then in your guidance, do you have any impact from foreign exchange built in there or possibly price declines as maybe you’ve passed through declines in component costs as they occur.

Most of our contracts are invoices are U.S. dollar denominated. We – our FX really comes from the fact that we have some Taiwan dollar denominated loans, and that’s what causes the quarterly fluctuation in our FX is just marking the dollar to – the U.S. dollar to the Taiwan dollar. So therefore, the only impacts on FX come from really a price setting issues as opposed to balance sheet issues.

Got it. Okay. And then lastly the strength in the quarter, did you observe any pulling or was it just more of the supply chain loosening up and being able to get more components and were there any push outs that you observed?

So we didn’t have any push outs. We had some customers, this will be in the 10-Q we had a couple customers who prepaid and whose shipments somewhat, which were made but were not – did not qualify for revenue recognition, others that would ship later. So that we didn’t have any push out, so.

Okay. Great. Thanks, again.

Your next question comes from the line of Mehdi Hosseini from SIGS. Your line is open.

Yes. Thanks for taking my question. A couple of follow-ups. Thanks for the update on the fiscal year and I just want to better understand how your system ASP would trend given the updated fiscal year 2023 revenue guides. I’m asking because you have done a really good job in increasing content, it’s captured in your system ASP, and I want to see if you would still be able to increase to see a system ASP increasing in double-digit figure. And I have a follow-up.

So Mehdi, probably may have heard that a lot of GPU prices and CPU prices are going up, especially with the new the new refreshes that are coming out. So we anticipate that ASPs will continue to go up.

Okay. Would – for your fiscal 2022, it was more than 30%, should we assume the acceleration or would you be able to keep up the pace?

It’s a big question. I mean again, they are lots of new technology, new CPU, new GPU, so that will be a positive side, but at the same time, the macro economy can be – can put in some negative impact. So at this moment, we try to play safe, so that’s why the number I will share is relatively conservative.

Okay. So that’s good. A balance sheet question. And David, there was a line item. I think accounts payable also helped combine the $75 million of the prepayment. It helped with a positive cash flow operation. And in that context, how should I think about cash from operation in Q2 fiscal year 2023?

Yes. So I think that I think my general comments apply that our – we see our cash flows as now more balanced with income – with net income. And so we’ll get a – we’ll have a few puts and takes where customers prepay more or less from quarter-to-quarter. But we went – we underwent a lot of heavy lifting Mehdi to get our revenue levels up and our AR levels up as we were growing. And so to the extent that we have more growth, we will face those challenges, but based on our current forecasts, we expect cash flows to be close to net income.

And then updated guide for CapEx in FY2023.

So we haven’t given a guide for FY2023 just for the next quarter.

Should I assume similar capital intensity as last year, just for modeling cash flows?

I think we’ll come out with a little – with more of a guide later on.

Got you. Thank you.

Your next question comes from the line of Ananda Baruah from Loop Capital. Your line is open.

Hey, good afternoon, guys. Congrats on the ongoing momentum and thanks for taking the question. I have a few falls tonight, so I may ask something that’s already been addressed. If it is, we can just chat on it offline. But I would love just context on customer penetration, any new customer acquisition that was contributed to the quarter. And then any context you can give on what continues to be really, really good ongoing strength of those key application types that have been driving the business for the last number of quarters. Anything that you haven’t given yet, I can take it offline with you or get out the transcript. Anything that I missed if you’ve already talked about it, but there’s any additional context, we love to get it. Thanks.

Yes, very good question. As I earlier just mentioned, we just introduced a couple of business automation tool, including auto configurator, including auto online, online service. So all of those were ahead of our sales, make our sales and customer relationship become more efficient, more accurate and we expect we are able to gain more customer, hopefully many more customer because of the improvement of our automation tool.

And Charles…

Again, with our much stronger storage product now, right, including all kind of data center management tool, our security tool and other service and applications. So yes, so we are in much stronger position from this point of view with our kind of large-scale total solution.

And let me ask a follow-up too. And this may – this is something that could have come up earlier as well on the call in your pay remarks or in the Q&A. Sort of upcoming Intel AMD and Nvidia cycles, should we think of those as being potentially meaningfully incremental to your business run rate or those sort of blended in? But they sort of just like blend into the run rate? Thanks.

For sure, customer will buy new product to replace that old product, right? But because we always have a stronger new product line, a new technology, that’s how we expect we will continue to gain customer base and also improve customer relationship because of a stronger product. And not just the hardware product like before, but now our total solution have customer a lot. And GreenComputing as you know, our GreenComputing is a total solution. And we make for example, water cooling much easier and much quicker delivery time. So all of those we believe will be a positive drive for our business growth.

That’s super helpful. Thanks a lot guys. Thanks, Charles.

Thank you.

Thanks.

[Operator Instructions] There are no further questions at this time. Mr. Charles Liang, I turn the call back over to you.

Thank you. Thank you for joining us today and expect to meet you next quarter. Thank you.