Super Micro Computer Inc

NASDAQ:SMCI

Earnings Call Analysis

Q1 Revenue Up, Guidance Raised for 2024

For Q1 2024, revenues increased to $2.12 billion, marking a 14% growth year-over-year, although there was a 3% decline from the previous quarter. AI-related platforms have been a key driver, and strategic investments are expected to fuel continued growth across various sectors. The company predicts Q2 sales will range from $2.7 to $2.9 billion. Margins have remained stable with a non-GAAP gross margin of 17%. The firm achieved a non-GAAP EPS of $3.43 and generated a strong cash flow of $271 million in Q1. Importantly, the company has raised its full-year revenue guidance from $9.5-10.5 billion to $10-11 billion.

A Strong Start to Fiscal 2024 With Accelerating Demand for AI Solutions

The company kicked off the fiscal year with a solid beginning, posting $2.12 billion in revenues for Q1. This marks a 14% increase year-over-year, which is notably towards the higher end of the provided guidance, despite challenges such as AI GPU and key component shortages. Demand for their AI platforms and especially the NVIDIA HGX-H100 tailored for LLM-optimized solutions has been a significant growth catalyst. The company is also addressing customers' needs for energy-efficient solutions by expanding its direct-attached cold-plate liquid-cooling (DLC) offerings. This innovative solution allows customers to efficiently double their AI computing capacity. To handle the escalating demand, production facilities are being expanded with the aim of hitting a capacity of 5,000 racks per month by the coming March quarter.

Steady Operational Performance and Outlook for Continued Revenue Growth

In the face of a traditionally soft quarter, the company has shown resilience, maintaining non-GAAP earnings per share close to the previous year's level and demonstrating strong operating leverage. Looking ahead, the company relayed a bullish stance, with an expectation of hitting a $20 billion annual revenue target in just a few years, owing to their industry leadership and robust product pipeline. For the short-term, fiscal Q2 is projected to generate between $2.7 billion to $2.9 billion in revenues, while the revenue guidance for the second half of fiscal 2024 is adjusted upwards to a range of $10 billion to $11 billion.

Positive Momentum in Back Orders and Production Capacity

Back orders are growing faster than anticipated, signaling robust demand that exceeds the company's forecasts. With this momentum, the estimates for the December quarter and the entire fiscal year are considered to be conservative. Management expressed optimism about maintaining this growth trajectory, which is further supported by an increase in rack-scale production capacity, soon to reach 5,000 racks per month.

Strategic Cost Management and Margin Considerations

Cost pressures seem to be under control, with the company indicating that customer costs won't be significantly impacted. There is a strategy in place to enhance efficiency and reduce costs through increased factory throughput and transitioning more manufacturing to lower-cost regions like Malaysia and Taiwan. These measures are expected to contribute to maintaining the margin guidance for the coming quarter. Furthermore, the initiation of production in Malaysia promises to improve overall costs and slightly increase profit margins.

Financial Metrics and Tax Rates

The Q1 non-GAAP gross margin was slightly down from the previous quarter at 17%, while operating expenses on a GAAP basis rose due to increased headcount and stock-based compensation expenses. The GAAP and non-GAAP tax rates for Q1 were 11.4% and 15.5%, respectively. For the upcoming Q2, the guidance includes non-GAAP diluted net income per share ranging from $4.40 to $4.88 with gross margins similar to Q1 levels, and CapEx projected to be between $105 million to $115 million for fiscal 2024.

Earnings Call Transcript 2024-Q1

[Operator]

Thank you for standing by. My name is Rhianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer Fiscal First Quarter 2024 Results Conference. With us today, Charles Liang, Founder, President and Chief Executive Officer; David Weigand, CFO; and Michael Staiger, Vice President of Corporate Development.[Operator Instructions] Thank you. I will now turn today's call over to Michael Staiger. Please go ahead.

[Michael Staiger, executive]

Good afternoon and thank you for attending Super Micro's call to discuss financial results for the first quarter, which ended September 30, 2023. 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 will 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 2024 and the full fiscal year 2024. There are a 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 most recent 10-K filing for fiscal 2023 and our other SEC filings. All of these documents are available on the Investor Relations page of Super Micro'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 will now turn the call over to Charles.

[Charles Liang, executive]

Thank you, Michael, and good afternoon, everyone. Today, I am pleased to announce that we are off to a good start for fiscal 2024, with first quarter revenues of $2.12 billion. We navigated tight AI GPU and key components supply conditions to deliver total solutions and large compute clusters, especially for generative AI workloads where our backorders continue to expand faster than our forecast.During the first quarter, demand for our leading AI platforms in plug-and-play rack-scale, especially for the LLM-optimized NVIDIA HGX-H100 solutions, was the primary growth driver. Many customers have started to request direct-attached cold-plate liquid-cooling solutions to address the energy costs, power grid constraints and thermal challenges of these new GPU infrastructures.In some cases, customers are able to double their datacenter AI computing capacity using our DLC solution due to lower system power requirements, lower PUE and higher computing density per cluster. To meet this strong demand, we have been continuously expanding our validation and production facilities. By the coming March quarter, we expect to complete a dedicated capacity for manufacturing 100 kilowatt racks with liquid-cooling capabilities, that will further expand our total rack production capacity to 5,000 racks per month in full-speed mass production.The increased AI business also includes our new inferencing platforms and telco-optimized edge products based on NVIDIA L40S, L40 and L4 and for sure H100 as well, AI product lines. Furthermore, the upcoming Grace Hopper Superchip-based MGX products for both generative AI and inferencing AI are just ready for volume production.Our broadest AI solution portfolio also includes Intel Gaudi 2, PCIe Flex, PVC a codename from the backyard, as well as AMD MI250 and MI300X and MI300A based platforms. We fully expect many of these products to gain broad adoption and expand our share in the accelerated computing market.Let's go over some key financial highlights. Fiscal Q1 net revenue totaled $2.12 billion, up 14% year-on-year and down 3% quarter-on-quarter, towards the high end of our guidance range of $1.9 billion to $2.2 billion despite the GPU and key component shortages during our traditionally soft September quarter.Fiscal Q1 non-GAAP earnings of $3.43 per share were in line with $3.42 a year ago and towards the high end of our guidance range of $2.75 to $3.50, demonstrating continued strong operating leverage during a traditional soft quarter.We launched and are delivering end-to-end Liquid-Cooled Data Center Solutions. We foresee up to 20% of our data center deployments will move to liquid-cooling and for the first time, customers can get a complete rack scale liquid-cooling solution from a single source with a maximum lead time of -- with minimum lead time of about 2 weeks.Super Micro is working hard to fully take the current AI growth opportunity by speeding up the development of more new AI optimized platforms. Super Micro is utilizing its Building Block Architecture to continue our first to market DNA with the launch of NVIDIA CG1, CG2 Grace Hopper Superchip and NVIDIA Grace CPU Superchip as we speak.Super Micro's latest MGX systems provide groundbreaking computing densities, energy efficiency and ease of datacenter deployment and serviceability, ideal for hyperscale and edge data centers. I believe this ongoing AI revolution will impact all industries and the world, possibly much more impactful than the Industrial revolution over 200 years ago.As most people know, the power consumption and thermal challenges of these new AI technologies have risen dramatically. We are now shipping up to 80-kilowatt rack solutions, with 100 kilowatt rack just around the corner, for compute-intensive datacenter, CSP and other industries.Our high-power efficiency systems, free-air and liquid-cooling expertise has become one of our key differentiators of success. I anticipate that up to 20% or more of global datacenters will transition to liquid-cooled solutions in just a few years. In addition, the combination of increasing computing density, reducing TCO and liquid-cooling reduces the environmental impact of datacenters significantly. This is well-aligned with Super Micro's green computing mission as we improve datacenter performance-per-watt, per square foot and per dollar.To better support traditional datacenter, enterprise and IoT, telco industry, we have begun the seeding and early ship of the upcoming fifth generation Intel Xeon processor, codenamed Emerald Rapids and shipping fourth generation AMD EPYC processor, codenamed Genoa and Bergamo SP5 and SP6 with more computing cores, PCIe Gen 5, CXL and many other workload-optimized features.For customers that want to test these latest systems, we offer our JumpStart program with remote access to our high-end X13, H13 and GPU systems for qualified customer's workload validation, testing and benchmarking before volume deployments.As the performance of CPU, GPU and memory technologies increase, enhancing storage performance is also necessary to feed massive datasets to the applications without becoming a bottleneck that slows the entire system or cluster down.Super Micro's new PCIe Gen 5 based E1.S and E3.S Petascale All-Flash storage servers offer industry-leading storage performance and capacity. Together, with our U.2 NVMe, top-loaded system and traditional storage platforms, we are fulfilling customer's AI, compute and storage needs with one-stop total solution shopping experience.Super Micro's Total IT Solutions is being recognized as saving customers from the complications of design, validation, sourcing, integration and onsite deployment. We are also streamlining their network switching, firmware and software management challenges, topping it off with our 24x7 Global deployment and service tiers.Essentially, our customers are now incorporating our capabilities into their long-term infrastructure plans, entrusting Super Micro provides them with fully optimized solutions and with scale capacity to fit their long-term needs.Given our current customers infrastructure demands, we have continued to evaluate our footprint beyond our ongoing expansion in Malaysia. We are adding several new buildings close to our headquarter in Silicon Valley campus and on track to surpass our current capacity of 4,000 racks per month.Today, with utilization rate at about 60%, our U.S. headquarter and Taiwan facility can easily support at least $18 billion in revenue. The new Malaysia facility will serve building blocks with high volume scale and improved cost structure, while pushing our total revenue capacity to a much higher scale than $20 billion. We are also continuing to work with some of our key partners and are deep in the planning process of adding a new manufacturing campus in North America, outside of California focused.We have just celebrated our 30th anniversary in September. For the past 30 years, we have been working tirelessly towards gaining industry leadership position with a best-in-class product portfolio, global scale capability and capacity, and the best time to market, distinguishing ourselves from the competition. Our IT industry leadership position will be even stronger in the near future.The pipeline of new products in the coming quarters has never been stronger. We are gaining market momentum that I expect to build deep into 2024, giving me confidence that fiscal Q2 revenue will be in the range of $2.7 billion to $2.9 billion. Additionally, we are expecting continued strength for the second half of fiscal year 2024 and now forecast revenue in the range of $10 billion to $11 billion.Our position as a leading supplier of rack-scale plug-and-play Total AI and IT Solutions has just begun. Our growth will accelerate as we deliver more optimized AI infrastructure to existing and emerging markets, along with our growing software and services value.I also look forward to providing more updates on our product lines in the coming quarters that will continue to extend our datacenter technology leadership for years to come. With that in mind, I expect our $20 billion annual revenue target to be just a couple of years away.Before passing the call to David Weigand, our CFO, I want to take this chance to thank to our partners, our customers, our Super Micro employees and our shareholders for your continued support. Thank you. David?

[David Weigand, executive]

Thank you, Charles. Fiscal Q1 2024 revenues were $2.12 billion, up 14% year-over-year and down 3% quarter-over-quarter. Revenues were towards the end of our guidance range -- the upper end of our guidance range of $1.9 billion to $2.2 billion, driven by AI-related platforms despite supply-chain challenges and summer seasonality.Next generation AI and CPU platforms continue to drive strong levels of design wins, orders and backlog. We expect diversified growth in fiscal 2024, driven by top-tier datacenters, emerging CSPs, enterprise investments in new AI, CPU servers and edge, IOT, telco markets. We are also enhancing our offerings in Storage, Switches, Software and Services to strengthen our Total Solutions offerings.During Q1, we recorded $917 million in the Enterprise and Channel vertical, representing 43% of revenues versus 45% last quarter. This was up 10% year-over-year and down 6% quarter-over-quarter due to seasonally lower enterprise spending as customers focus on AI investments. The OEM appliance and large datacenter vertical revenues were $1.17 billion, representing 55% of Q1 revenues versus 53% last quarter. This was up 26% year-over-year and flat quarter-over-quarter.One existing CSP large datacenter customer represented 25% of total revenues for Q1. Our emerging 5G, telco, edge, IoT segment revenues were $31 million, which represented 2% of Q1 revenues. AI, GPU and rack-scale solutions again represented over 50% of our total revenues this quarter with AI, GPU revenues in both the enterprise channel and the OEM appliance and large data center verticals.The mix of complete systems, storage and rack-scale Total IT Solutions has increased over the last 2 years. Server and Storage Systems comprised 93% of Q1 revenue and Subsystems and Accessories represented 7%. ASPs increased significantly on a year-over-year basis and decreased slightly quarter-over-quarter driven by product and customer mix.By geography, U.S. represented 76% of Q1 revenues, Asia 11%, Europe 9% and Rest of World 4%. On a year-over-year basis, U.S. revenues increased 25%, Asia decreased 17%, Europe decreased 19% and Rest of World increased 63%. On a quarter-over-quarter basis, U.S. revenues decreased 3%, Asia decreased 4%, Europe decreased 16% and Rest of World increased 38%. The Q1 non-GAAP gross margin was 17%, down slightly quarter-over-quarter from 17.1%. We continue to focus on winning strategic new designs and gaining market share.Turning to operating expenses, Q1 OpEx on a GAAP basis increased by 25% quarter-over-quarter and 42% year-over-year to $181 million, driven by higher stock-based compensation expenses and headcount. On a non-GAAP basis, operating expenses decreased 3% quarter-over-quarter and increased 11% year-over-year to $130 million. Our Q1 non-GAAP operating margin was 10.8% versus 11% last quarter and 12.5% a year ago due to changes in revenues, gross margins and operating expenses.Other income and expense for Q1 was approximately $4.7 million, consisting of $1.9 million in interest expense, offset by a net gain of $6.6 million principally from foreign exchange. Our interest expense decreased sequentially as we paid down our debt during the quarter.The income -- the tax provision for Q1 was $20.2 million on a GAAP basis and $36.2 million on a non-GAAP basis. The GAAP tax rate for Q1 was 11.4% and the non-GAAP tax rate was 15.5%. We delivered strong Q1 non-GAAP diluted EPS of $3.43, which was at the high end of the guidance range of $2.75 to $3.50 due to revenues towards the higher end of guidance, stable gross margins, lower non-GAAP OpEx and foreign exchange gains.Cash flow generated from operations for Q1 was $271 million, compared to cash flow used in operations of $9 million during the previous quarter due to continued strong profitability, which was offset by higher inventory requirements based on build plans for Q2. CapEx was $3 million for Q1 resulting in positive free cash flow of $268 million versus negative free cash flow of $17 million last quarter. We have $50 million remaining under the authorized buyback program, which expires on January 31, 2024.The closing balance sheet cash position was $543 million, while bank debt was $146 million resulting in a net cash position of $397 million, up from a net cash position of $150 million last quarter. We generated $271 million in operating cash flow and then paid down debt by $144 million in Q1.Turning to the balance sheet and working capital metrics compared to last quarter, the Q1 cash conversion cycle was 86 days versus 77 days in Q4. Days of inventory increased by 16 days to 91 days versus the prior quarter of 75 days as we built inventory for a seasonally strong Q2. Days sales outstanding was up by 5 days quarter-over-quarter to 43 days, while days payables outstanding increased by 12 days to 48 days.Now turning to the outlook. We remain enthusiastic about our diversified business model covering a wide range of GPU, AI, core computing, storage, 5G telco, edge and IOT solutions. We expect a seasonally strong Q2 and are carefully observing the global macro-economic situation and continuing supply-chain constraints, especially for leading AI platforms.For the second quarter of fiscal 2024 ending December 31, 2023, we expect net sales in the range of $2.7 billion to $2.9 billion, GAAP diluted net income per share of $3.75 to $4.24 and non-GAAP diluted net income per share of $4.40 to $4.88. We expect gross margins to be similar to Q1 levels. GAAP operating expenses are expected to be approximately $191 million and include $49 million in stock-based compensation expenses that are not included in non-GAAP operating expenses.The outlook for Q2 of fiscal year 2024 fully diluted GAAP EPS includes approximately $40 million in expected stock-based compensation expenses, net of tax effects of $13 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense to be a net expense of approximately $8 million. The company's projections for Q2 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 15.7%, a non-GAAP tax rate of 17.1% and a fully diluted share count of 57.6 million for GAAP and 58.3 million shares for non-GAAP.We expect CapEx for the fiscal second quarter of 2024 to be in the range of $21 million to $23 million and a range of $105 million to $115 million for the fiscal year 2024. For the fiscal year 2024 ending June 30, 2024, we are raising our guidance for revenues from a range of $9.5 billion to $10.5 billion to $10 billion to $11 billion.Michael, we are now ready for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Ananda Baruah with Loop Capital.

[Ananda Baruah, analyst]

Congrats on the strong and ongoing execution. I guess, yes, just so a couple of the starts. Charles, can you talk about the degree to which you guys either are benefiting or anticipate the benefit from the increased NVIDIA supply that was pointed to China but now needs to find other places to go? And to the degree you think you might benefit, if you could give us some sense of at what rate that benefit makes its way out of China and into other countries. And then I have a follow-up.

[Charles Liang, executive]

Thank you for the question. Again, it's a complicated situation. But at this moment, we believe December quarter, our supply from NVIDIA will be much better than last quarter. And that's one of the reasons why we are able to fulfill more percentage of customer demand and that's why we say $2.7 billion to $2.9 billion should be our target. So basically, a price condition that we need to meet.

[Ananda Baruah, analyst]

That's actually really helpful context. I appreciate it. And then, I guess, sort of dovetailing from that, Charles. So the midpoint of the implied guide for the fiscal year, the raised guide, $10.5 billion, implies that the March quarter and June quarter would also be about $2.8 billion, which is the midpoint of your December quarter guide. And then you also, though, made mention of growth accelerating. And so -- and it seems like supply is getting better. You also have co-op capacity coming on, going into the year. So I guess the question is, is there conservatism built in into even the implied fiscal year guide that's been raised or is there some pull-forward in December quarter that you think might be challenging to duplicate in the March and June quarter? It seems like conservatism, but just wanted to check that?

[Charles Liang, executive]

Yes. Thank you. Again, we continue to gain lots of design win. So our back order has been growing faster than what we forecast in reality. So at this moment, $2.7 billion to $2.9 billion for December should be a very conservative number. And for our whole fiscal year, $10 billion to $11 billion, again, should be a conservative number. So I feel very optimistic to continue to grow quickly and that's why we continue to grow our rack-scale, including a difficulty rack-scale rather than production capacity. Likewise, just, before we have 4,000 rack per month capacity and now pretty much we will grow to 5,000 rack per month capacity very soon. So we are very optimistic for the future growth.

[Operator]

Our next question comes from George Wang with Barclays.

[George Wang, analyst]

Just maybe you could give some color in terms of the allocation from other suppliers and partners, kind of maybe in the near-term, kind of for the future, like the AMD MI300, which is expected to launch in the first quarter 2024. And also aside from H100 from NVIDIA, any other upside when the L40S from NVIDIA is ramping? Just curious and also including Gaudi from Intel. Maybe you can give some color on allocation from additional suppliers?

[Charles Liang, executive]

Yes. Thank you for the question. Yes. I mean, as you know, we have a very strong NVIDIA product line, including the L40S, right, and including the CG1, CG2 on the way. And AMD MI300X also getting ready. And Intel Gaudi 2 is ready to volume production. So although we have a very good demand and very strong supply capacity. So, again, I feel very optimistic for a quicker growth.

[George Wang, analyst]

Okay. I have a quick follow up if I can. Just in terms of when Malaysia coming out and also in the future, kind of Taiwan facility, any thoughts on the kind of impact to the profit margin and kind of obviously with the much lower labor costs, can you kind of quantify, maybe give some color just on expected operating margin accretion going forward?

[Charles Liang, executive]

Yes. I mean, as of what I just shared, our utilization rate for U.S. and Taiwan capacity today only about 60%. So when we have a higher utilization rate, our overall cost will be lower, right? So that's why when we grow revenue, our profitability will increase. And Malaysia, as you know, is a lower cost campus. So once we start production in Malaysia, our cost will be better and profit margin will be slightly improved.

[Operator]

Our next question comes from Janik Wing with Susquehanna Financial Group.

[Mehdi Hosseini, analyst]

Yes. It's actually Mehdi Hosseini. David, your midpoint of the December quarter guide implies 57% year-over-year growth, but operating margin declining by about 100-basis-point. I understand utilization rate is in the 60% range, but as you bring up utilization rate, how should I think about the OpEx and the leverage from here on?

[David Weigand, executive]

Yes. So we expect that we will continue to get operating leverage, Mehdi. We were, I think, a little conservative in our guide for OpEx in Q2. So we -- and as we were in Q1, and so we came in a little bit lower. We are doing everything we can to do that in Q2 as well. So back to your operating guide question. We came down a little bit on gross margin year-over-year, as you know, but we expect -- as Charles mentioned, we expect some gross margin leverage, as well as operating margin leverage as we -- as our operating expenses never increase at the rate that our revenues are.

[Mehdi Hosseini, analyst]

And Charles, a big part of your cause is memory and other components. And everything we have heard from memory manufacturers that they are not going to sell at prices that were prevalent just a couple of months ago. So memory prices are going up. And how do you alleviate that inflationary trend to be able to expand margins?

[Charles Liang, executive]

Thank you. I mean, basically we are able to pass-through our cost to customers. So for that portion, basically we are kind of okay. We won't be impacted by that. At least it won't be impacted too much.

[Operator]

Our next question comes from Jon Tanwanteng with CJS Securities.

[Jonathan Tanwanteng, analyst]

Great quarter and a nice outlook. Just wanted a little more color on the gross margin guidance and outlook. I mean, I assume you are getting better margins and utilization and on your new facilities on the ramp. Are you simply planning to give all that back with the share gain initiatives and the hyperscale mix or is there some input cost component and kind of when should we expect the timeframe for gross margin leverage to really become apparent? Is it only with the new facilities or can that happen a little sooner than that?

[David Weigand, executive]

Well, it's a combination, Jon, of -- as we ramp revenues up, we are going to get leverage on the gross margin because, as Charles mentioned earlier, we are going to get higher efficiency and factory throughput as we -- which will lower costs as we put more through the factories. So we will get some benefit there. We will also get benefit as we transition more manufacturing over to Malaysia and Taiwan. And I think that -- so that's why right now we are, although, very competitive situation, we are maintaining our margin guidance for Q2.

[Charles Liang, executive]

Yes. I can add a little bit of some color. I mean, kind of our software business is growing. Our service, including on-site deployment, all those will help our gross margin, our value bridge. So at this moment, we should be on the right track, healthy direction.

[Jonathan Tanwanteng, analyst]

Got it. Okay. And then just a question on the, I think you said, you are building 7 new buildings here in the U.S. I know you are expanding and looking for places to put facilities in North America. Would those all be margin accretive or neutral or negative, just given the higher costs here? How do we think about those facilities and their impact?

[Charles Liang, executive]

Very good question. Indeed, we are adding some more buildings in the Bay Area and most of those will be rental buildings, because our growth is faster than what we can build in a building. So it will be a rental facility. And then I did mention about we are looking for another location, hopefully in a little bit of a lower cost state in North America. So we are planning for building a new campus in -- we will decide in the next few months, I believe. But short-term, new buildings in Silicon Valley will be rental property.

[Operator]

Our next question comes from Nehal Choski, Northland Capital Markets.

[Nehal Chokshi, analyst]

Yes. You may have already addressed this, but what are your expectations for AI revenue contribution with respect to the midpoint of December quarter guide being up 32% quarter-over-quarter?

[David Weigand, executive]

Yes. So I think we are expecting really the same performance, Nehal. We will expect it to be in a range of over 50%.

[Nehal Chokshi, analyst]

Okay. And can you give a little bit more precise number as far as what the exposure was in the September quarter other than greater than 50%?

[David Weigand, executive]

We are giving that approximate figure and that's our guide.

[Charles Liang, executive]

Yes. Basically AI revenue percentage continues to grow, but hopefully in ALCN consistently with...

[Operator]

Our next question comes from Aaron Rakers with Wells Fargo.

[Aaron Rakers, analyst]

Yes. Congrats on the quarter. I am just curious, going back to the supply side of the discussion, how would you, as you are engaging with customers and thinking about their build-out plans in their datacenter footprints for AI, how would you characterize the evolution of lead times on these higher end GPUs? I mean, relative to what it was maybe 90 days ago, how has that evolved and how are you seeing that evolve into the current quarter?

[Charles Liang, executive]

Yes. It's a complicated job. However, because our building-box solution and our global footprint together, we have a huge lead time. We support hundreds of customers. So [Technical Difficulty] indeed, relatively, we are able to take care of the allocation, the lead time, the inventory control, product flow-in, more efficient than our competitors. And we are continually improving in that area.

[Aaron Rakers, analyst]

So you would say that lead times have improved throughout this course this last quarter and you would expect that, it sounds like to continue improving in the December quarter. It's kind of a fair characterization.

[Charles Liang, executive]

Yes. And that's why our inventory utilization rate will be improving. So before, I guess, we have about 90 days turnaround time.

[Aaron Rakers, analyst]

Yes.

[Charles Liang, executive]

And I guess that will be improved when the scale continues to grow and when we continue to leverage our building-box solution, situation will continue to improve.

[Aaron Rakers, analyst]

Yes. And then the follow-up question would be, as the market evolves more competitively and you see, I know a prior question on the MI300, you have got the Gaudi Silicon. I guess the way I think about it is these customer deployments are longer cycle. It's not like these decisions are made in a given quarter. So, as we look to these products, particularly the MI300X ramping, really starting early part of next year and through the course of next year, are those projects that you are already seeing visibility into and that actually adds another layer of growth to the pipeline? Are those projects that you have already been designed in and you are just waiting for those products to kind of launch to really start to see that incremental revenue for those competitive offerings?

[Charles Liang, executive]

Yes. You are right. Because our building-box solution, so we are able to design all that and make a new technology available earlier than the market, basically. So, usually we send our solution to customer for evaluation so our customer can make a decision earlier and that allows Super Micro, there will be an earlier time to prepare the product, prepare inventory. So, it doesn't matter if we have a solution, AMD solution or Intel solution, we provide a same building-box solution and we gain time to market advantage. We provide a customer earlier seeding, earlier system so that they can validate in advance.

[Operator]

This will conclude our question-and-answer session and our conference call today. Thank you for joining us. You may now disconnect.