Charles Liang - President, CEO and Chairman Howard Hideshima - Chief Financial Officer Perry Hayes - SVP, IR.

Aaron Rakers - Stifel Nicolaus.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated first quarter fiscal 2014 conference call. The company's news release issued earlier today is available from its website at www.supermicro.com.

In addition, during today's call, the company will refer to a slide presentation that has made available to participants which can be accessed in a downloadable PDF format on its website at www.supermicro.com in the Investor Relations section under the Events and Presentations tab.

During the company's presentation, all participants will be in a listen-only-mode. Afterwards, securities analysts and institutional portfolio managers will be invited to participate in a question-and-answer session, but the entire call is open to all participants on a listen-only basis.

As a reminder, this call is being recorded Tuesday, October 22, 2013. A replay of the call will be accessible until midnight November 5th by dialing 1-877-870-5176 and entering THE conference ID number 6100108. International callers should dial 1-858-384-5517.

With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial Officer; and Perry Hayes, Senior Vice President, Investor Relations. Now, I'd like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir..

Good afternoon and thank you for attending Super Micro's conference call on financial results for the first quarter fiscal year 2014, which ended September 30, 2013. By now you should have received a copy of today's news release 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 and Presentations tab. Please turn to slide two. Before we start, I’ll remind you that our remarks include forward-looking statements.

There are number of risk factors that could cause Super Micro’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 Form 10-K for fiscal 2013 and our other SEC filings.

All of those documents are available from the Investor Relations page of Super Micro’s website at www.supermicro.com. We assume no obligation to update any forward-looking statements. Most of today’s presentation will refer to non-GAAP financial results and outlooks.

For an explanation of our non-GAAP financial measures, please refer to slide three of this 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.

I'll now turn the call over to Charles Liang, Chairman and Chief Executive Officer..

Thank you, Perry, and good afternoon, everyone. Please turn to slide four. First, let me provide you with the highlights of our first fiscal quarter. We are pleased that our first quarter revenue was $309 million in the traditionally weaker season. It’s 4.1% lower quarter-over-quarter and 14.2% higher year-over-year.

Non-GAAP net income was $9.9 million or 12.6% lower quarter-over-quarter and 223.4% higher compared to last year. Super Micro’s non-GAAP earnings per share was $0.22 per diluted share compared to $0.26 in last quarter and $0.07 last year. Slide five and six please. We are pleased with last quarter’s revenue, which was 14.2% higher than last year.

This is a strong performance for typically tougher quarter for IT spending. This quarter the growth is likely to be the strongest among our competition. Here is a [fiscal] breakdown of last quarter’s revenue, our server system contribute 46.4% of our total revenue.

The 39.1% of our business last quarter came from OEMs and Direct customers with the Internet Data Center accounting for 8.3% of sales. These results indicated that more and more of our partners choose our completed servers services due to the higher quality and performance optimization.

Geographically, revenue in North America was 56.7%, Europe was 23% and Asia was 17.8% of total sales. North America and Europe continues to be strong and consistent. Recently we acquired a new 36-acre San Jose campus to accommodate our future growth or the American market. We also saw a strong growth from a stable product mix on a year-to-year basis.

Our FatTwin system was at 176%. Storage was up 24%. Blade was 28% higher. GPU and Xeon Phi solutions were 25% higher. MicroCloud grew 116% and continues to ramp strongly. Finally, our switch product saw a good demand and was 66% higher. Super Micro always grew in the period of technology transition.

This quarter the new Ivy Bridge processor launched in the middle of September and most of our products were ready to support the new processor at launch. Despite the base quarter launch, the product volume ramp nicely. The Ivy Bridge announced for TwinPro is another great display of our engineering strength and business sense.

Our unique business model is (inaudible) in developing trajectory based product and to be first to market. Proving that point we had developed over 80 optimized server solutions for the Ivy Bridge processor ready at launch. Even now we are still ahead of competition with the most Ivy Bridge solutions available in the market.

Our business model, they are not stopped by innovation along technology cycles. We continue to create brand new products that lead the industry. For example, our FatTwin architecture found the great success is to scale out datacenter applications, which is advantage in energy saving, performance, density, cost and easier maintenance.

Super Micro (inaudible) developed the Twin architecture with higher performance, expandability and a greater efficiency. As a result the Twin product and something else new and exciting will be coming soon. Another example is our MicroCloud which is 3U multiple node solution for datacenter, web hosting and cloud applications.

Starting with a node as a first, we recently had launched our 24 node solution and that’s the outfit in the 3U enclosure. Furthermore as competition has set up for low power, low cost, high density servers, Super Micro have developed a 6U, 112 node MicroBlade system (inaudible) low power deal and other processors.

The system was recently on display at this year’s Intel Developers Forum or IDF. Super Micro also continues to launch new high density HPC solutions. They’re focused on GPU and Xeon Phi support from when you see some risk for GPU or Xeon Phi support to embrace solutions with 20 GPU or Xeon Phi support in 7U.

Super Micro had the wide list of range of GPU and Xeon Phi server solutions in the market. The newest edition will support a GPU or Xeon Phi in the 4U system. That’s designed in a way with no components presented the fully redundant features on power including also improved systems activity and availability.

On the software and service side, we had developed a software suite to have our customer manage their server costs and data centers remotely. We have also officially launched our on-site service program this quarter to satisfy mission critical customers, who need on talk, enable our support.

These products are becoming high value sources, always steady popular speed. Now let me take a moment to address market conditions and how Super Micro is positioned to compete.

We heard that our larger competitors talk about how tough the market is and we see that their revenue have been declining for many quarters, during this time, while our competitor struggles, Super Micro grows and continue grow strongly in spite of the industry competition and macroeconomic tailwind.

Of course the IT market is tough, but Super Micro has continued to develop industry leading product. They have won the market share because of their superior pure performance, performance per watt, per dollars and square foot. This business model enabled us for success in this industry and we continue to take market share.

We’re getting asked why we are successful when we are not the biggest. The answer is simple, our strong R&D, our strong global foundation now and our strong dedication as a team. We understand when you are not the biggest you have to complete smarter and harder to win.

In fact our corporate culture embraced competition since the beginning of our company. And our employees dedicated themselves to become the best in the industry. Indeed we are united in that believe and we are on track to grow strongly. But for more specific on the first quarter let me turn it to over to Howard..

Thank you, Charles. And good afternoon everyone.

I will focus my remarks on earnings, gross margin, operating expenses and similar items on a non-GAAP basis which reflects adjustments to exclude stock compensation expenses, reconciliation of GAAP to non-GAAP is included in the financial statements of the company in today’s earnings release and in the supplemental detail in the slide presentation accompanying this conference call.

Let me begin with a review of the first quarter’s income. Please turn to slide seven. Revenue was 309 million, up 14.2% from a same quarter a year ago and down 0.1% sequentially.

The increase in revenue from last year was primarily due to our increase in server solution sales the growth for our new products such as FatTwin, Storage, MicroCloud, GPU, Xeon Phi, the switches and racks, highlight the importance of innovation and servicing the variety of needs which our customers demand.

In addition we have continued to build our brand and image and expanded our product offering, not only in hardware but also in management software and support. This does further open opportunities in the markets for us. On a geographical basis U.S. and Europe grew 30% and 12.2% over last year respectively.

Asia was down 15% due to competition from local suppliers. The sequential decrease in revenues from last quarter is primarily due to seasonal weakness around the world. Asia was particularly weak due to lower data center projects last quarter. We do see strength in our Xeon Phi, GPU and MicroCloud products which grew over 30% sequentially.

In addition, Ivy Bridge was launched in mid September. With Ivy models available at the time of launch we continue to offer the broadest array of solution to our customers and it puts us in a great position to take advantage of this product type. Slide eight. Turning to product mix.

The proportion of revenues for server systems was 46.4% of total revenues which result from 39.5% the same quarter a year ago and down from 47.4% last quarter. ASP for servers was $2,600 per unit which is up from $2,000 last year and up from $2,400 last quarter.

We shipped approximately 55,000 servers in the first quarter and 1, 56,000 sub systems and accessories. Our server units were about the same as last year. The compute notes have increased from the prior year from customers who are driving our high density solutions.

We continue to maintain a diverse revenue base with over 600 customers and now these customers representing more than 10% of our quarterly revenues. Internet data center revenue was 8.3% which was a decrease from 9.5% in the prior quarter and 8.8% in the prior year. Furthermore 56.7% of our revenues came from U.S.

and 60.9% from our distributors and reseller. Slide 9 and 10. Non-GAAP gross profit was $47 million, up 33% from $35.3 million in the same quarter last year, and up 2% from $46.3 million, sequentially. On a percentage basis, gross margin was 15.2%, up from 13% a year ago and up from 14.4%, sequentially.

Price changes for Ablecom resulted in no basis points changed to gross profit in the quarter with total purchases representing approximately 17.3% of total cost of goods sold compared to 20.9% a year ago and 17% sequentially. The year-over-year increase in gross margin resulted from price changes in hard disk drive since the flood in October 2011.

A lower provision for inventory reserves given product transition which occurred last year with the launch of Sandy Bridge as well as the favorable product mix in the current quarter when compared to the prior year.

Sequentially, gross margin was up due to favorable product mix and more complete server solutions and less internet datacenter revenue as well lower inventory reserves. Hard disk drive, pricing was stable and memory pricing did increase in between the quarters. However, neither had a material effect to the gross margin. Slide 11.

Operating expenses were $32.4 million, up from $30.7 million in the same quarter a year ago and up from $31.2 million sequentially. As a percentage of revenue, operating expenses was 10.5% down from 11.3% year-over-year and up from 9.7% sequentially.

Operating expenses was higher on an absolute dollar basis year-over-year, primarily in R&D at personnel expenses increase due to the annual salary increase and material expenses associated with the rollout of Ivy Bridge.

Sequentially operating expenses were up due to higher personnel expenses associated with annual salary increases as well as prototype material and testing fees associated with the rollout of our Ivy Bridge 8 products. The company headcount increased by 15 sequentially to 1,610 total employees.

We continue to focus on leveraging the investments we have made in our infrastructure while still making strategic investments in our product portfolio. Operating profit was $14.6 million, up by $10 million from $4.6 million a year ago and down by $5.5 million from $15.1 million sequentially.

On a percentage basis operating margin was 4.7% up from 1.7% a year ago and equal to 4.7% sequentially. Net income was $9.9 million or 3.2% of revenues, up from $6.8 million from $3.1 million a year ago, and down $1.4 million from $11.3 million sequentially.

Our non-GAAP fully diluted EPS was $0.22 per share, up from $0.07 per share a year ago and down from $0.26 per share sequentially. The number of fully diluted shares used in the first quarter was 44,984,000. The tax rate in the first quarter on a non-GAAP basis was 31.7% compared to 31.3% a year ago and 24.7% sequentially.

The rate was higher from last quarter due to the pending exploration of the R&D tax credit and lower tax benefits from Taiwan. We expect the effective tax rate on a non-GAAP basis to be approximately 31% for the second quarter, which is up from 24.5% in the same quarter last year.

The increase reflects the pending exploration of the R&D tax credit in December of 2013 and the release of tax liability last year. Turning to the balance sheet on a sequential basis, slide 12.

Cash and cash equivalents and short and long-term investments were a $114.2 million, up $18.5 million from $95.7 million in the prior quarter and up $52.9 million from $61.3 in the same quarter last year.

In the first quarter, free cash flow was a positive $16.4 million primarily due to decreases in accounts receivable from record revenues in the prior quarter. Slide 13, accounts receivable decreased by $15.2 million to $134.1 million with DSO was 42 days, an increase of four days from 38 days in the prior quarter.

Inventory of $254.3 million was comparable to the prior quarter with days inventories increasing by five days to 89 days. The increase in inventory days was primarily due to lower cost of goods sold during the first quarter.

Account payable decreased by $7.2 million to $165.7 million with the days payable outstanding increasing by four days to 59 days primarily due to decrease of cost of goods sold in the quarter as mentioned above. Overall cash conversion cycle days was 72 days, an increase of five days from 67 days in the prior quarter.

Now for a few comments on the [ops], during the first quarter we saw a seasonally weak quarter, in which we continue to grow faster than the industry and take market share from our competitors. As we entered the second quarter, we have a full array of solutions to take advantage of the Ivy Bridge launch.

In addition the same quarter is also a seasonally strong quarter for the industry. Therefore the company currently expect net sales for the quarter ending December 31, 2013 in the range of $320 million to $350 million. Assuming this revenue range, the company expect non-GAAP earnings per diluted share of approximately $0.25 to $0.31 for the quarter.

It is currently expected that the outlook will not be updated until the release of the company’s next quarterly earnings announcement. Notwithstanding subsequent developments however, the company may update outlook or any portion thereof at anytime. With that let me turn it back to Charles for some closing remarks..

Thank you, Howard. Last quarter’s results indicated that Super Micro is off to a strong start for this fiscal year. Many of our popular product line performed strongly. Our leadership in innovative architecture and optimized total solutions are firmly in place. I am confident that we will continue our growth trends in the coming quarters and years.

Operator at this time, we are ready for questions..

Thank you, sir. (Operator Instructions) And we’ll go first to Aaron Rakers with Stifel..

Yeah thanks for taking the question.

First, can you talk a little bit about the Ivy Bridge ramp, how we expect to see, how big of a contributor was that in the September quarter and how much of an impact do you expect in the December quarter? And on that same topic, historically we’ve seen in past cycles some benefit on a gross margin basis, what’s your assumption on gross margin as that product cycle materializes?.

Okay, I mean, I’d just say anytime there are economic transition, it’s a good window for Super Micro to grow. And Ivy Bridge basically will provide some opportunities as well. So because our [regional launch] was September around 15th, September 10th, right? So it’s kind of pretty much end of last quarter.

So not much impact to last quarter, but we are having more impact to this quarter, I mean December quarter. And we have kind of strong product liability, I mean other than Ivy Bridge. So our December quarter and next coming quarters, I believe will be a strong way..

Okay. And you mentioned obviously Asia-Pac down 15% year-over-year in this most recent quarter. You mentioned two items, obviously week over our datacenter spending and you also had mentioned competitive dynamics.

Can you take those two items and talk a little bit about them, what are you seeing competitively relative to maybe the weakness in this quarter being attributable to just push outs in datacenter spending?.

Hey, Aaron, this is Howard. With regards to the comments on in Asia, yeah saw some weakness based on some of the yen issues that have happened over the last year. So again that caused us to be a little less competitive in the local geo other than that there are various competitions going on out there in Asia more so than across the rest of the world.

We are positioning ourselves very well with --. So everybody again we are getting more competitive out there..

And that’s why it’s very important we continue to a stronger aggressive debate, specifically our manpower in Asia..

Okay, I’ll see you folks. Thank you..

(Operator Instructions). And it appears at this time, we have no further questions. I'd like to turn the call back over to Mr. Liang for any additional or closing remarks..

Thank you for joining us today. And we look forward to talking to you again at the end of this quarter. Thank you everyone. Have a great day..

Thank you. Ladies and gentlemen, that does conclude the Super Micro first quarter fiscal year 2014 conference call. We do appreciate your participation. You may disconnect at this time. Thank you..