SMCI - NASDAQ

Good morning. My name is Devin and I will be your conference operator today. At this time I would like to welcome everyone to the Super Micro Computer, Inc. Fiscal Q2 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you for your patience. Mr. Michael Staiger, you may begin your conference.

Good afternoon and thank you for attending Supermicro’s call to discuss financial results for the second quarter, which ended December 31, 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’ve 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 third quarter of fiscal 2023 and the full fiscal year 2023. 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 other SEC filings. All of 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. And I’ll now turn the call over to Charles.

Thank you, Michael, and good afternoon, everyone. Today, I am pleased to announce another outstanding quarterly result for Supermicro, driven by contributions across our diversified customers, end markets and strong products. No single customer contributed more than 10% of our revenue. This is the eighth consecutive quarter of outstanding growth that effectively doubled our annual revenue. Let me share some key highlights for the quarter. First, revenue for the second quarter of fiscal year 2023 totaled $1.803 billion, up 54% year-on-year, above our guidance range of $1.7 billion to $1.8 billion. Our fiscal second quarter non-GAAP earnings per share grew over 271% year-on-year at $3.26 compared to $0.88 a year ago, far exceeding the high end of our guidance range of $2.64 to $2.90. This great achievement is made possible by our much-improved operational and financial discipline, including our Taiwan campus that contributed lower operation and production cost. With the increase of AI applications, our Plug-n-Play Rack-Scale Total IT solutions and GPU based systems continue to be strong contributors with more than 100% year-on year growth. Storage products are also gaining significant traction with 41% year-over-year growth as we continued to grow market share. We are mindful that many of our partners and customers have become increasingly more cautious with respect to macroeconomic headwind, and we are prepared to deal with these uncertainties as we always have in the past. The strength of our products and business fundamentals keeps us confident in our ability to continue gaining market share from competition given in the traditionally soft Q3 quarter. We expect the headwind may persist in the first half of calendar 2023, but we believe our business will recover quickly in the second half of the year as our new Sapphire Rapids, Genoa product and H100 product lines start to ramp in high volume. Having said that, our fiscal year 2023 revenue year-over-year growth should be in the middle 30% compared with last year without changing our business plan for strong growth in the coming years. For fiscal year 2024, we are targeting year-over-year revenue growth of at least 20%. We continue to see new customers, increase demands for energy efficient rack-scale plug-n-play solutions across the tier-1, tier-2 datacenter ecosystems as well as other enterprise customers. Some of them are highly interested in our liquid cooling at the rack and system level for their green computing HPC, datacenter and cloud installations. In addition, our continuous investment in software, switch and service are paying dividends to our Total IT strategy as they grow. Our Silicon Valley and Taiwan campuses continue to optimize their rack-scale production processes, ready to deliver L10, L11 and L12 systems in volume with software, networking and services. Our U.S. facility still has 40% capacity while Taiwan still has 50% capacity headroom to grow for the next one to two years. To accommodate stronger growth in the near and midterm future, our recently broken-ground Malaysia new campus will start to contribute even better profit margin through economy of scale with our more and more new high-volume customers. I am very glad that the lower operation and production cost from our new Malaysia campus will be ready in just 4 to 5 quarters away. When the time gets tough, customers are looking for tangible value from their IT investment. With the power requirements rising with each new generation of technology, now up to 400 watts on the CPUs and 700 watts on the GPUs, we are seeing the true value of our Green Computing effort. We have added both high ambient temperature operation and liquid cooling support for the new portfolio to reduce environmental impact, cooling-related infrastructure costs and OpEx. We are happy to see many more cloud total solutions customers speeding up their deployments with our Green Computing methodology. Many of them have already saved tens of millions of dollars in electricity cost as a direct result. We expect them to grow even faster by the coming quarters and years as we deliver superior performance, performance per watt and per dollar through new generations of products. As I have shared in the past, when the IT industry adopts our Green Computing solutions or develop green solutions like ours, it’s possible to save close up to $10 billion in electricity costs per year, which is equivalent of eliminating about 30 fossil fueled power plants and equating to the preservation of up to 8 billion trees for our planet. As we approach the second half of our fiscal 2023, we see opportunities for diversified growth across more Large Datacenters, Enterprise, AI, Machine Learning, Storage, Cloud, 5G/Telco and IOT markets. Our online B2C and B2B programs have finally started to ramp up and offers the convenience and quicker service of direct support from Supermicro to many customers around the world. With all the online automation and intelligent database-driven tools, we see many new customers that are really happy to order from our new platform. 24-hour around-the-clock services, real time responses, precise communication, cost efficiencies are just some of the advantages this program offers. With our industry’s most extensive product portfolio supporting the recently launched Intel 4th Gen Scalable Xeon processors, Sapphire Rapids; 4th Gen AMD EPYC, Genoa processors; and NVIDIA H100, Hopper, GPUs, we are confident to maintain and enhance our market-leading growth momentum in the coming quarters and years. Unlike last few generation’s steady product ramp up, we currently see many more customers taking samples and seeding units of these new solutions. This demonstrates our customer base is strongly expanding now. We expect them to become a significant revenue stream by the June quarter and more so in the September quarter and beyond. With market excited for the latest innovations from Intel, AMD, NVIDIA and Supermicro, we remain optimistic that the demand will expand as new architectures developed for AI, Metaverse, Omniverse and IoT/Edge applications will be strong in the foreseeable future. We had a better than expected December quarter. With new generation of products in a strong position now, it will generate more demand, especially with our rack-scale solutions. Along with our getting stronger software, switch and service offerings, our potential to gain market share has never been stronger than today despite the macroeconomic headwind. With our strong cash position today, and especially total PE, [ph] we have allocated $200 million for stock buyback program. We continue to emerge as one of the largest global suppliers of Total IT Solutions with market share gains. We are a Silicon Valley company focusing on green innovation and system technology. Our efforts have saved our customers’ OpEx tremendously. With our 50% still available capacity in Taiwan and the soon coming more cost-efficient campuses in Malaysia, we continue to expect a 20% to more than 50% year-over-year growth for the coming years, and we remain on track to reach our long-term growth objectives of $20 billion annual revenues in the long run. Now, I will pass the call to David Weigand, our Chief Financial Officer, to provide additional details on the quarter. David?

Thank you, Charles. I am pleased to report Q2 fiscal 2023 revenues of $1.8 billion, up 54% year-on-year and down 3% sequentially. Revenues were at the high end of our initial guidance range of $1.7 billion to $1.8 billion and our recently updated range of $1.77 billion to $1.8 billion. Our year-over-year revenue growth continued to be driven by new and existing customers widely adopting our GPU/AI systems and rack-scale Total IT Solutions which contributed to solid gross margins and record operating margins. In fiscal Q2, we had good growth in our two largest verticals: enterprise/channel and OEM vertical -- I’m sorry, the enterprise/channel vertical and the OEM appliance/large datacenter vertical, which demonstrated the resilience of our business model. AI/GPU accelerated computing solutions represented more than 20% of our revenues over the past four quarters and is a significant growth opportunity based on our wide range of AI/GPU platforms. We achieved Q2 revenues of $1.8 billion with no customer representing more than 10% of revenues. We recorded $970 million in our Enterprise and Channel vertical, representing 54% of Q2 revenues versus 45% last quarter, up 29% year-over-year and up 15% quarter-over-quarter. The OEM appliance and large datacenter vertical achieved $766 million in revenues, representing 42% of Q2 revenues versus 50% last quarter, this was up 172% year-over-year and down 17% quarter-over-quarter. Our emerging 5G/Telco/Edge/IoT segment achieved $67 million in revenues, representing 4% of Q2 revenues versus 5% last quarter. Systems comprised 92% of total revenue and was up 68% year-over-year and down 3% quarter-over-quarter. Subsystems/accessories represented 8% of Q2 revenues and were down 24% year-over-year and up 2% quarter-over-quarter. 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, while on a quarter-over-quarter basis, the volume of systems shipped increased while nodes shipped and System node ASPs decreased, again, due to product and customer mix. Taking a look geographically in fiscal Q2 the U.S. market represented 61% of revenues, Asia 18%, Europe 17% and Rest of World 4%. On a year-on-year basis, U.S. revenues increased 71%, Asia increased 16%, Europe increased 45% and Rest of World increased 98%. On a quarter-over-quarter basis, U.S. revenues decreased 15%, Asia increased 23%, Europe increased 33% and Rest of World increased 33%. The Q2 non-GAAP gross margin was 18.8%, that was unchanged quarter-over-quarter and was up 480 basis points year-over-year due to price discipline, lower freight costs and leverage from higher factory utilization. Taking a look at operating expenses, Q2 OpEx on a GAAP basis decreased by 4% quarter-over-quarter and increased 8% year-over-year to $122 million. On a non-GAAP basis, operating expenses decreased 7% quarter-over-quarter and increased 5% year-on-year to $109 million. OpEx decreased sequentially due to higher NRE and marketing credits that we received from the new platform launches. The non-GAAP operating margin was 12.8% for the quarter versus 12.5% last quarter and 5.2% a year ago as we benefited from lower operating expenses. Other income & expense was approximately $8 million in expense primarily consisting of $6 million in foreign-exchange losses as the dollar weakened during Q2 and interest expense of $2 million as compared to an $8 million in FX gain and $4 million of interest expense last quarter. Interest expense decreased sequentially as we reduced short-term credit lines, this was partially offset by increased interest rates. The tax provision for Q2 was $30 million on a GAAP basis and $34 million on a non-GAAP basis. The GAAP tax rate for Q2 was 14.3% and non-GAAP tax rate was 15.3%. Our tax rates were lower sequentially as we benefited from favorable discrete tax benefits. Lastly, our share of income from our joint venture was a loss of $1.4 million this quarter as compared to a loss of $0.9 million last quarter. We delivered strong Q2 non-GAAP diluted EPS of $3.26 which was up 271% year-over-year and down 5% quarter-over-quarter and exceeded the high end of the original guidance range of $2.64 to $2.90 and our recently updated guidance of $3.07 to $3.22. Our EPS outperformance was attributed to our ability to maintain gross margins, manufacturing efficiencies and higher NRE and marketing credits. Turning to the balance sheet and working capital metrics compared to last quarter, our Q2 cash conversion cycle was unchanged at 95 days versus Q1. Days of Inventory was 99, which is down by one day sequentially due to a more stable supply-chain. Accounts receivable increased sequentially by $32 million while accounts payable decreased sequentially by $225 million. Days sales outstanding was down by 1 day quarter-over-quarter to 38 days while days payables outstanding came down by 2 days to 42 days. In fiscal Q2, we generated positive cash flow from operations of $161 million versus $314 million in Q1. Our operating cash flow continued to benefit from strong revenues and margins and an improved supply chain. We note that Q1 operating cash flow benefited from $70 million in customer pre-payments recorded as deferred revenues. CapEx was $10 million for Q2 resulting in positive free cash flow of $151 million versus positive free cash flow of $303 million last quarter. The closing balance sheet cash position was $305 million, while bank debt was reduced to $170 million as we paid down $80 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. Our Board will determine the timing and amount of share repurchases. Now turning to the outlook for our business, we continue to watch the global macroeconomic situation. Additionally, as the supply chain disruptions have eased and the industry transitions to new platforms from Intel, AMD, NVIDIA during 2023, we anticipate normal -- return to normal seasonal patterns. For the third quarter of fiscal 2023 ending March 2023, we expect net sales in the range of $1.42 billion to $1.52 billion, GAAP diluted net income per share of $1.75 to $2.02 and non-GAAP diluted net income per share of $1.88 to $2.14. We expect gross margins to be down 30 to 40 basis points due to macroeconomic conditions. GAAP operating expenses are expected to be $139 million, which includes approximately $12 million in expected stock-based compensation and other expenses that are excluded from non-GAAP diluted net income per common share. GAAP and non-GAAP operating expenses are expected to increase in Q3 due to lower R&D NRE credits and higher personnel costs. We expect other income and expenses, including interest expense, to be a net expense of approximately $3 million and expect a nominal loss 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 15.9%, a non-GAAP tax rate of 16.9%, and a fully diluted share count of 57 million for GAAP and 58 million shares for non-GAAP. We expect CapEx for the fiscal third quarter of 2023 to be in the range of $11 million to $14 million. For the fiscal year 2023 ending June 30, 2023, we’re maintaining our guidance for revenues from a range of $6.5 billion to $7.5 billion, GAAP diluted net income per share from a range of $8.50 to $11.00 and non-GAAP diluted net income per share from a range of $9 to $11.30. The Company’s projections for GAAP annual net income assume a tax rate of 19.2% and a rate of 19.8% for non-GAAP net income. For fiscal year ‘23, we are assuming a fully diluted share count of 57 million shares for GAAP and 58 million shares for non-GAAP. The outlook for fiscal year 2023 fully diluted GAAP EPS excludes (sic) [includes] approximately $33 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. 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 Instructions] Our first question comes from Nehal Chokshi with Northland Capital Markets.

Yes. Thank you. And congratulations on the strong results, especially gross margin, and the guidance that implies very resilient gross margin. Dave, you did mention that you’re expecting 30 basis points of the Q-over-Q downtick due to macro pressures. I mean, that’s a de minimis amount. Can you discuss why only that amount?

Well, Nehal, our margins are holding up. We expected a downtick last -- in this Q2, but it didn’t happen. We’re still allowing for a downtick just in case we have to sharpen our pencil on some particular deals. But otherwise our prices and margins are holding up.

So then, can you talk about why you think your margins are indeed holding up in what appears to be pretty quickly deteriorating macro environment?

Well, we have customers that are -- that have pushed out orders, certainly Nehal, but that we still bring value to our customers. And that value is -- has not diminished. And, in fact, with all of the new designs that are coming out, we believe it’s increased.

Got it. That’s great. And then, you’re maintaining your fiscal year ‘23 guidance despite outperformance in the December quarter and you’re providing at least March guidance that’s above my expectations. So, how should we be reading that implied June Q guidance, basically? Should we be -- if we take at the low end of the fiscal year ‘23 guidance, you could be looking at a pretty dire gross margin situation within June Q, is that the correct interpretation?

No, I would say Nehal that really we are -- we don’t want to update our guidance. We’re confident in our guidance and in the ranges that we’ve given. And so really we’re just -- we’re watching the macroeconomic situation. But we remain confident in our basic business fundamentals and in our values -- the values that our products bring.

Okay. So just to be clear, there is no reasonable basis for believing that gross margin would drop to the low-end of your what’s arguably a sale target model of 14% to 17% in the June quarter, or lower, is that correct?

So we -- right now, we don’t see any degradation of our gross margins, as I mentioned. And so -- but we feel like -- we remain confident in our in our ranges. And we don’t believe this is a time to update them.

And then, Charles made a comment that he expects fiscal year ‘23 revenue be taking at least 30% year-over-year growth or mid-30%. But your overall fiscal year ‘23 guidance range is still a pretty large bracket. So, how should we be reconciling these two things here?

Well, I think that number of mid-30s, that still falls within the range. Right, Nehal?

Absolutely.

Yes. So I think that’s an indication.

Our next question comes from Ananda Baruah with Loop Capital.

Yes, just a few if I could. So, maintaining -- actually, I think, slightly raising the midpoint of the fiscal year guide, March is below where Street is, the implication is June is above where Street is. And so, is it really just a matter of, kind of Street, like we are -- and I think I’m part of this, sort of had miss-modeled March to the low side? And subsequently, we’re also miss-modeling June? Well, we miss-modeled March to the high side, and we’re miss-modeling June to the low side? Just a clarification. Just your thoughts on that and I have a couple of follow-ups. Thanks.

Sure. So again, I’ll kind of go back and we’re -- because things have been changing economically and we had some -- we’ve seen some push-outs, not cancellations, again, push-outs, we feel like, we shouldn’t be adding more details on Q4 or annual guidance. And so, really, we feel like the guidance ranges that we gave allow for where we think performance will land. And so, to give more specificity to that, at a time when details are not easy to -- are not as clear to see, we think is the wrong way to go. And so instead, we’re giving good guidance on what we see in the quarter ahead. But again, we’re still comfortable with our annual guidance.

And it sounded -- I think, I believe Charles mentioned, and actually just please clarify this for me if this is inaccurate, something about kind of macro software, but recovery in the second half of calendar year ‘23. And if I heard that accurately, is that to say, you guys envision the first half of the calendar year being sort of the softest part of macro for you? And you also made comments Dave about returning calendar ‘23 to seasonality. And so first half is the soft spot, second half, you guys think sort of normal seasonality plus quote unquote, recovery begins and that dovetails into your fiscal year ‘24 outlook? And so contextually, I just want to ask you, is that how you guys are thinking about it?

Yes. Macroeconomic headwind issue is some concern to everyone now. So other than that, indeed, our demand is still pretty strong, especially as you know, Intel just announced Sapphire Rapids; AMD, Genoa; and NVIDIA, Hopper, H100. So we have very strong products available. And this time, we saw a customer very aggressively asking was simple for early seeding. So, we believe these were put in big growth. And -- however the very big growth in model should be in about summer or even after summer timeframe. So long-term, we have a very strong confidence, especially after summer. Before summer, depends on macroeconomic headwinds. We try to be more cautious.

Very helpful, Charles. And, Charles, last for me, I believe you mentioned potential for more large data centers in the second half of calendar ‘23. Did I hear that accurately? And are those incremental data centers, if I heard it accurately? And any more context you could provide around that? Thanks.

Yes. I mean, as you know, we start to approach large accounts since maybe one year ago. So, we continue to gain interest from those CSP and larger accounts. And that’s why we increased having capacity for lower production cost to support those larger accounts. And we even started a big campus in Malaysia. So, the goal is to increase our production capacity and lower our operation and production costs, so that we are able to support those larger accounts with reasonable profitability. So, we continue to gain some engagement and interest from larger accounts around the world. And also at the same time, we also started to engage with lots of mini size accounts, especially those through B2B and B2C. So, we are engaging with much broader customer base now.

Our next question comes from Mehdi Hosseini with SIG.

Couple of follow-ups. It seems like the price decline in the December quarter has more to do with the mix. And I am assuming that the OEM and large data center mix went down from 15, September to 42% in December. And in that context, my question to you is how should I think of the mix in the March quarter, and how will that impact unit and ASP trends?

In March quarter, because of the market headwind, so we still tried to be cautious. But after summer, our feeling become much stronger, because a lot of good products, lots of engagement from larger accounts, middle sized account and even small -- a lot of small accounts.

So, Charles, I just want to understand, would the mix of revenue from OEM and large data center decline again in the March quarter?

Yes. I would say. Yes.

And then, I also want to understand how you see the ramp of these three different CPUs. You have always -- you’ve historically been a close partner of Intel, AMD and NVIDIA. How long in advance do you actually procure those components in advance of building the boxes? How much of the inventory commitment or working capital commitment do you have to make before the actual high volume manufacturing takes place?

Indeed we have a very close partnership with all of our vendors. So, in this area, I believe we are similar to the industry standard or slightly better. David, you may…

Yes. Many things have improved recently, as you know, on the supply chain side. So, we used to procure further in advance. And so one of the reasons our inventories have come down, one of the reasons our cash flows have been -- have increased. And by the way, we had net income the last two quarters of $360 million, we had free cash flow of $454 million. And so, again, the reason for that is we had to invest less money in inventory. So, our ability to produce products is faster now, because we can buy later in the cycle. But to your point on the timing, some of it’s going to be dependent on when in the quarter our customers are taking the bulk of their products. So, if we have early quarter shipments versus late quarter shipments, that can affect the timing of our inventory and accounts payable.

And then one last question for me on the balance sheet, especially with the Malaysia facility coming on line, are you still targeting, like a $45 million of CapEx for fiscal year ‘23, or more or less?

Yes, so, fair question. So, we’re going to add in -- for Q3, we’re adding a $4 million of CapEx for Malaysia, and we’ll add $9 million in our Q4, for Malaysia. So that’ll be $13 million for our fiscal second half. And then, this is going to be an investment over a couple -- over several years. And so, we’ll make another $13 million in the first half of fiscal ‘24. So, that’s not -- that’s given you a little more insight on that investment.

Should I assume that just the maintenance CapEx out to the Malaysia is what, $8 million to $10 million a quarter?

Yes, that’s correct. So, your question, yes, you can maintain the 45 and just add in the figures that I just gave you.

Our final question comes from the Nehal Chokshi with Northland Capital Markets.

Great, thanks. I get to leadoff and cleanup, awesome. So, relative to seasonal patterns, and excluding the 21.9% customer from the September quarter, how did the business actually perform in the December quarter then?

So, the December quarter was an outstanding quarter on in every respect. And so from free cash flow, inventory, all the metrics were strong, cash position. So, as you mentioned, customer -- no customer concentration. And so, we feel we had a really good -- a really great quarter.

I mean, my interpretation here is that the core business excluding that 120%-plus customer from the September quarter was up more than seasonal. Is that a correct interpretation?

Well, we always have customers that will take -- when we have design wins, Nehal, we’ll always -- from quarter-to-quarter, we’ll always have shipments -- large shipments to customers. Sometimes it’s according -- sometimes they change their forecast, and we ship a little bit more in one quarter than another. So, we can’t control that always. But as we said, as the supply chain has improved, that was -- that dynamic was felt a lot harder during the supply chain crunch. Now that we’ve returned to a better supply chain, therefore, that’s why we feel we’ll return to more normal seasonality. But that can always be altered by a new design win that we get in one quarter or over two quarters.

Yes. Basically, in ‘22, we had some larger accounts, but in fiscal year ‘23, now we are adding more larger accounts. So we are growing in more largely accounts and more midsize accounts, and also B2B, B2C. So, indeed, our customer mix is becoming much more diversified, much more healthier, and for sure the volume will be bigger. That’s why we extend to Malaysia for really lower cost operation and campus.

Presumably, just diversification with the larger customers is coming on the higher margin plug and play rack-scale products. Is that correct?

We hope so. So anyway, that’s -- we feel we still have a lot of room to add more customers. And once we have a higher capacity in USA, Taiwan, Malaysia, our plan is to add a lot of more customers.

And then, is there a particular vertical that you guys are seeing the pushups from that -- that you were talking about for the quarter? [Ph]

Data center. Right.

The Push-outs were not in data -- large data center?

Well, he was saying that they were in large data center, but so…

In the large data centers?

Yes.

Okay. All right. Very good. And then for the March quarter, you’re guiding to an 18% Q-over-Q decline in revenue. There’s clearly obviously some seasonality with March quarter. Then there might be, I guess, ongoing push outs from the large data center customers and then there’s also a macro element. Are these the three major elements that are driving the 18% Q-over-Q decline? And then could you potentially help parse out what are rank order of these three drivers here?

So Nehal, if you look back pre-COVID, our typical Q3 decline was 12%. Okay. So, that was during the time of normal seasonal patterns. During COVID, there was a different dynamic of course, because our supply was scarce. But we think as we return to normalized supply that we will have this kind of seasonality.

Okay. And then, as far as the potential runoff of the large customer versus macro, any input as far as what’s the driver there, as far as the above the 12% typical Q-over-Q decline?

Well, we’re engaging with new customers all the time. And so, we’re not looking to be declining, and in fact, just the opposite. So, while we will have some seasonality as in a stable supply chain, we still have our growth plans that are intact and that we remain confident in.

And then my last question here is, did I hear correctly that there’s a new buyback that was implemented, something about $200 million buyback? Can you just clarify that?

No, that’s the existing, already approved buyback.

So, now that you guys have worked yourself back to a net cash position with the strong free cash flow that you’ve highlighted over past two quarters, is it reasonable to expect that you guys are going to put that back to work now?

Yes, it’s completely up to the Board, completely up to the Board. But, I think it’s certainly unreasonable.

We got one Board member here. Charles, your thoughts? Your thoughts on utilizing the buyback?

You know, as why I say, the PE is still low and cash flow is strong, why not?

We have a question from Mehdi Hosseini with SIG.

Yes. So, just a quick follow-up, just a clarification. David, did you employ or did you say that the 10% plus customers that you had in September quarter of last year is going to come back or you’re going to have another 10% plus customer in the coming quarters? It was very confusing.

Yes. So Mehdi, the 10% customer we had a year ago September is a different customer. Okay? The 22% customer that we had in the recent September quarter, again a different customer, was below was did not constitute 10% of our revenues in Q2. Okay, did I clarify that?

Sure. Just as a follow-up, do you expect that particular customer to come back, is that what the confidence behind the June quarter is?

Well, we have -- so…

Indeed with our new product, indeed very strong offering. So we expect any time we will have a more new larger customer or old customer coming back is always very high possibility. And we are working with them very closely there, the partnership would come stronger ever.

This is dynamic.

Yes.

We thrive on repeat business.

Thank you for clarification.