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What changed in Supermicro's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Supermicro's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+608 added−413 removedSource: 10-K (2025-02-25) vs 10-K (2023-08-28)

Top changes in Supermicro's 2024 10-K

608 paragraphs added · 413 removed · 322 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

55 edited+41 added−14 removed32 unchanged
Biggest changeOur key product lines include: • SuperBlade ® and MicroBlade ™® system families designed to share common computing resources, thereby saving space and power over standard rackmount servers; • SuperStorage systems that provide high-density storage while leveraging an efficient use of power to achieve performance-per-watt savings; • Twin family of multi-node server systems designed for density, performance, and power efficiency; • Ultra Server systems for demanding enterprise workloads; • GPU or Accelerated systems for rapidly growing AI markets; • Data Center Optimized server systems that deliver increased scalability and performance-per-watt with an improved thermal architecture; • Embedded (5G/IoT/Edge) systems optimized for evolving networks and intelligent management of connected devices; and • MicroCloud server systems that deliver node density in environments with space and power constraints.
Biggest changeOur key product lines include: • Extensive portfolio of air cooled and liquid cooled AI Servers for Training and Inferencing with integrated GPUs or PCIe based architectures; • SuperBlade ® and MicroBlade ® system families are designed to share common computing resources, thereby saving space and power over standard rackmount servers; • SuperStorage systems that provide high-density storage while leveraging an efficient use of power to achieve performance-per-watt savings.
(“Ablecom”) and its affiliate Compuware Technology, Inc. ("Compuware"), both of which are related parties, for contract design and manufacturing coordination support. We work with Ablecom to optimize modular designs for our chassis and several other components. Ablecom also coordinates the manufacturing of chassis for us.
(“Ablecom”) and its affiliate Compuware Technology, Inc. (“Compuware”), both of which are related parties, for contract design and manufacturing coordination support. We work with Ablecom to optimize modular designs for our chassis and several other components. Ablecom also coordinates the manufacturing of chassis for us.
Server Software Management Solutions Our open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (“SSM”), Supermicro Power Management software (“SPM”), Supermicro Update Manager (“SUM”), SuperCloud Composer and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments.
Server Software Management Solutions Our open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (“SSM”), Supermicro Power Management software (“SPM”), Supermicro Update Manager (“SUM”), SuperCloud Composer and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments, including liquid cooling.
We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees. We engage in proactive efforts to prevent occupational illnesses and injuries which allows us to maintain a safe, healthy, and secure workplace.
We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees. We engage in proactive efforts to prevent occupational illnesses and injuries which allow us to maintain a safe, healthy, and secure workplace.
In addition to our accelerated compute platforms business, we offer a large array of modular server subsystems and accessories, such as server boards, chassis, power supplies and other accessories. These subsystems are the foundation of platform solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market.
In addition to our server and storage platforms business, we offer a large array of modular server subsystems and accessories, such as server boards, chassis, power supplies and other accessories. These subsystems are the foundation of platform solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market.
Our Compensation Committee provides oversight of various matters related to human capital management, such as incentive compensation plans and equity compensation plans and the administration of such plans, compensation matters outside of the ordinary course, and compensation policies. Corporate Information We were founded in and maintain our worldwide headquarters and the majority of our employees in San Jose, California.
Our Compensation Committee provides oversight of various matters related to human capital management, such as incentive compensation plans and equity compensation plans and the administration of such plans, compensation matters outside of the ordinary course, and compensation policies. Corporate Information We were founded in and maintain our worldwide headquarters and approximately half of our employees in San Jose, California.
Information contained on our website is not incorporated by reference in, or made part of, this Annual Report or our other filings with, or reports furnished to, the SEC. The SEC also maintains a website that contains our SEC filings. SMCI | 2023 Form 10-K | 8
Information contained on our website is not incorporated by reference in, or made part of, this Annual Report or our other filings with, or reports furnished to, the SEC. The SEC also maintains a website that contains our SEC filings. SMCI | 2024 Form 10-K | 10
Although there is no assurance that existing or future governmental laws and regulations, including environmental regulations, applicable to our operations or Total IT Solutions will not have a material adverse effect on our capital expenditures, results of operations, and competitive position, we do not currently anticipate material increases in expenditures for compliance with government regulations.
Although there is no assurance that existing or future governmental laws and regulations, including environmental regulations, applicable to our operations or Total IT Solutions will not have a material adverse effect on our business, financial condition, results of operations, and competitive position, we do not currently anticipate material increases in expenditures for compliance with government regulations.
We place manufacturing orders for our products that are based on forecasted demand. We generally maintain substantial inventories of our products because the computer server industry is characterized by short lead-time orders and quick delivery schedules.
We place manufacturing orders for our products based on forecasted demand. We maintain substantial inventories of our products because the computer server industry is characterized by short lead-time orders and quick delivery schedules.
We work closely with the leading microprocessor, graphics processing units (“GPU”), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate our new products' design with their product release schedules. This enhances our ability to introduce new products incorporating the latest technology rapidly.
We work closely with the leading microprocessor, graphics processing units (“GPU”), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate our new products' design with their product release schedules. This enhances our ability to rapidly introduce new products by incorporating the latest technology, improve quality and reduce costs.
SMCI | 2023 Form 10-K | 6 We are committed to protecting the environment through our “We Keep IT Green” initiative as a first to market innovator in high-performance, high-efficiency server, storage, networking and management total solutions. We recognize the critical importance of talent and culture to our success and ability to fulfill this vision.
We are committed to protecting the environment through our “We Keep IT Green” initiative as a first to market innovator in high-performance, high-efficiency server, storage, networking and management total solutions. We recognize the critical importance of talent and culture to our success and ability to fulfill this vision.
Global assembly, test and quality control of our servers are performed at our manufacturing facilities in San Jose, California, Taiwan and the Netherlands. Each of our facilities Quality and Environmental Management System has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards.
Global assembly, test and quality control of our servers are performed at our manufacturing facilities in San Jose, California, Taiwan and the Netherlands, with plans to expand manufacturing to Malaysia. In each of our existing facilities, a Quality and Environmental Management System has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards.
Talent Development, Acquisition, Retention and Rewards Talent Strategy Our talent strategy focuses on attracting skilled, engaged employees who contribute the talent and skills critical to our innovative and forward-looking workforce. Our recruiting process actively sources talent supporting our ability to hire candidates with professional qualifications and potential.
Talent Development, Acquisition, Retention and Rewards SMCI | 2024 Form 10-K | 8 Talent Strategy Our talent strategy focuses on attracting skilled, engaged employees who contribute the talent and skills critical to our innovative and forward-looking workforce. Our recruiting process actively sources talent supporting our ability to hire candidates with professional qualifications and potential.
Research and Development We perform most of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the development process and reduce time-to-market.
SMCI | 2024 Form 10-K | 4 Research and Development We perform most of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the development process and reduce time-to-market.
Financial Information about Segments and Geographic Areas Please see Part II, Item 8, Note 14, “Segment Reporting” to the consolidated financial statements in this Annual Report for information regarding segment reporting and Part II, Item 8, Note 3, “Revenue - Disaggregation of Revenue” to the consolidated financial statements in this Annual Report for information regarding our net sales by geographic region.
Financial Information about Segments and Geographic Areas Please see Note 15, “Segment Reporting” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding segment reporting and Note 3, “Revenue - Disaggregation of Revenue” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding our net sales by geographic region.
We have a Safety Committee, which is designed to promote communications regarding health, safety, and emergency response procedures and to help implement improvements to our work areas and practices. SMCI | 2023 Form 10-K | 7 We are committed to complying with applicable laws, including those associated with labor and employment, across all areas of our operations.
We have a Safety Committee, which is designed to promote communication regarding health, safety, and emergency response procedures and to help implement improvements to our work areas and practices. We are committed to complying with applicable laws, including those associated with labor and employment, across all areas of our operations.
We are one of the largest employers in the City of San Jose and an active member of the San Jose and Silicon Valley community. We were incorporated in California in September 1993. We reincorporated in Delaware in March 2007.
We are one of the largest employers in the City of San Jose and an active member of the San Jose and Silicon Valley community. SMCI | 2024 Form 10-K | 9 We were incorporated in California in September 1993. We reincorporated in Delaware in March 2007.
We leverage our relationships in our indirect sales channel and with our OEMs to penetrate select industry segments where our products can provide better alternatives to existing solutions. SMCI | 2023 Form 10-K | 4 We maintain close contact with our indirect sales channel partners and end customers.
We leverage our relationships in our indirect sales channel and with our OEMs to penetrate select industry vertical market segments where our products can provide better alternatives to existing solutions. We maintain close contact with our indirect sales channel partners and end customers.
See Part II, Item 8, Note 9, “Related Party Transactions,” to the consolidated financial statements and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.” SMCI | 2023 Form 10-K | 5 We monitor our inventory continuously to be able to meet customer delivery requirements and to avoid inventory obsolescence.
See Note 10, “Related Party Transactions,” in the Notes to Consolidated Financial Statements and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.” We monitor our inventory continuously to be able to meet customer delivery requirements and to avoid inventory obsolescence.
In addition to our internal software development efforts, we also integrate and partner with external software vendors to meet customer requirements. Leveraging Our Global Operating Structure We plan to continue to increase our worldwide manufacturing capacity and logistics abilities in the United States, Taiwan and the Netherlands to more efficiently serve our customers and lower our overall manufacturing costs.
In addition to our internal software development efforts, we also integrate and partner with external software vendors to meet customer requirements. Leveraging Our Global Operating Structure We plan to continue to increase our worldwide manufacturing capacity and logistics abilities in the United States, Taiwan and the Netherlands and we plan to bring additional manufacturing capacity online in Malaysia.
To date, costs and accruals incurred to comply with these governmental regulations, including environmental regulations, have not been material to our capital expenditures, results of operations, and competitive position.
To date, costs and expenses incurred to comply with these governmental regulations, including environmental regulations, have not been material to our business, financial condition, results of operations, and competitive position.
We provide employees with compensation packages that include base salary, incentive bonus programs, and long-term equity awards, including restricted stock units and options, tied to the value of our stock price.
We provide employees with compensation packages that include base salary in the form of cash and representing fixed compensation to reward individual performance and contributions (“Base Salary”), incentive bonus programs, and long-term equity awards, including restricted stock units and options, tied to the value of our stock price.
We rely on a variety of marketing vehicles, including advertising, public relations, web, social media, participation in industry trade shows and conferences to help gain market acceptance. We provide funds for cooperative marketing to our indirect sales channel partners to extend the reach of our marketing efforts.
We rely on a variety of marketing vehicles, including advertising, public relations, web, social media, collateral, and participation in industry events and tradeshows, to gain market awareness and generate new customer demand. We provide funds for cooperative marketing to our indirect sales channel partners to extend the reach of our marketing efforts.
Server and Storage Systems We sell accelerated compute platforms comprised of a combination of server and storage systems in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures.
Server and Storage Systems We offer platforms in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures.
Human Capital Resources and Management Mission, Culture, and Engagement “The key to success in technology is designing a company around people committed to work that they love,” said Charles Liang, Supermicro Founder, President, Chief Executive Officer, and Chairman of the Board. We aim to attract, develop, and retain a high performing and engaged global workforce.
Human Capital Resources and Management Mission, Culture, and Engagement The key to success in technology is designing a company around people committed to work that they love. We aim to attract, develop, and retain a high performing and engaged global workforce.
Our in-house design competencies, design control over many of the components used within our server and storage systems, and our Server Building Block Solutions® (an innovative, modular and open architecture) enable us to rapidly develop, build and test our compute platforms along with our server and storage systems, sub-systems and accessories with unique configurations.
Our in-house design competencies, design control over many of the sub-systems required within our server and storage systems, and our Server Building Block Solutions® (an innovative, modular and open architecture) enable us to rapidly develop, build and test complete solutions, which include servers, storage, software, and networking components.
As of June 30, 2023, we employed 5,126 full time employees, consisting of 2,448 employees in research and development, 585 employees in sales and marketing, 465 employees in general and administrative and 1,628 employees in manufacturing. Of these employees, 2,291 employees are based in our San Jose facilities.
As of June 30, 2024, we employed 5,684 full-time employees, consisting of 2,885 employees in research and development, 632 employees in sales and marketing, 509 employees in general and administrative and 1,658 employees in manufacturing. Of these employees, 2,659 employees are based in our San Jose facilities.
We work with distributors, value-added resellers, system integrators, and OEMs to market and sell our optimized solutions to their end customers. We provide sales and marketing assistance and training to our indirect sales channel partners and OEMs, who in turn provide service and support to end customers.
In addition, we have a centralized command center, designed to assist customers with quick and accurate configurations. We work with distributors, value-added resellers, system integrators, and OEMs to market and sell our optimized solutions to their end customers. We provide sales and marketing assistance and training to our indirect sales channel partners and OEMs.
Additionally, during the fiscal year 2023, the computer server industry experienced global supply chain shortage, which requires us to carry more inventories to fulfill our customers and partners’ demands and backlogs.
Additionally, during fiscal year 2024, the computer server industry experienced global supply chain shortages, which requires us to carry more inventory to fulfill demand from our customers and partners.
Support Services: Our customer support services offer competitive market warranties, generally from one-to-three years, and warranty extension options for products sold by our direct sales team and approved indirect sales channel partners. Our customer support team provides ongoing maintenance and technical support for our products through our website and 24-hour continuous direct phone-based support.
Our Global Services team provides help desk services and on-site product support for our server and storage systems. Support Services: Our customer support services offer competitive market warranties, generally from one-to-three years, and warranty extension options for products sold by our direct sales team and approved indirect sales channel partners.
Introducing More Innovative Products, Faster We seek to sustain advantages in both time-to-market and breadth of products incorporating the latest technological innovations, such as new processors, advancements in storage and evolving I/O technologies. We seek these advantages by leveraging our in-house design capabilities and our Building Block Solutions ® architecture.
Our engineers work directly with our manufacturing personnel to plan together and identify and correct issues together. Introducing Innovative Products, Faster We seek to sustain advantages in both time-to-market and breadth of products by incorporating the latest technological innovations, such as new processors, advancements in storage and evolving I/O technologies.
Our service plans vary depending on specific services, response times, coverage hours and duration, repair priority levels, spare parts requirements, logistics, data privacy and security needs. Our Global Services team provides help desk services and on-site product support for our server and storage systems.
Global Services: Our strategic direct and OEM customers may purchase a variety of on-site support service plans. Our service plans vary depending on specific services, response times, coverage hours and duration, repair priority levels, spare parts requirements, logistics, data privacy and security needs.
We complement our accelerated compute platforms inclusive of server and storage system offerings with software management/security solutions, global services and support, the revenue for which is included in our server and storage systems revenue.
These products are designed to serve a variety of markets, such as enterprise data centers, cloud computing, AI and 5G/edge computing. We complement our accelerated compute platforms inclusive of server and storage system offerings with software management/security solutions, global services and support, the revenue for which is included in our server and storage systems revenue.
We work closely with Intel, NVIDIA and AMD, among others, to develop products that are compatible with the latest generation of industry-standard technologies under development. Our collaborative approach with these vendors allows us to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology.
Our collaborative approach with these vendors allows us to coordinate the design of our new products with their product release schedules, thereby enhancing our ability to rapidly introduce new products incorporating the latest technology. We work closely with their respective development teams to enhance system performance and reduce system-level issues.
We work closely with their respective development teams to enhance system performance and reduce system-level issues. Similarly, we work very closely with our customers to identify their needs and develop our new product plans accordingly. Customers During each of fiscal years 2023, 2022 and 2021, we sold to over 1,000 direct customers in over 100 countries.
Similarly, we work very closely with our customers to identify their needs and develop our new product plans accordingly. Customers During fiscal year 2024, we sold to over 1,100 direct customers in over 110 countries.
In addition, we offer product lines that are designed to share common computing resources, thereby saving both valuable space and power as compared to general-purpose rackmount servers.
We offer product lines that are designed to share common computing resources, thereby saving both valuable space and power as compared to general-purpose rackmount servers. In addition, due to the advanced power requirements of these systems we seek to provide end-to-end liquid cooling solutions across our designs to optimize the elevated power and thermal management requirements.
We believe our approach of leveraging an overall architecture that balances data center power requirements, cooling, shared resources and refresh cycles helps the environment and provides total cost of ownership (“TCO”) savings for our customers. SMCI | 2023 Form 10-K | 1 We conduct our operations principally from our Silicon Valley headquarters, Taiwan and Netherlands facilities.
We believe our approach of leveraging an overall architecture that balances data center power requirements, cooling, shared resources and refresh cycles helps the environment and provides total cost of ownership (“TCO”) savings for our customers. Supermicro anticipated the need for rack-scale integration and liquid cooling capabilities.
Diversity, Equity, Inclusion, and Belonging We strive to create a culture that promotes diversity, equity, inclusion, and belonging to boost team dynamics, productivity, and innovation within the organization. Employees should be treated fairly and respectfully despite differences and should feel accepted in the workplace to contribute their perspective and be valued.
Diversity, Equity, Inclusion, and Belonging We believe a workplace that encourages different voices, perspectives and backgrounds creates better teams, better solutions and more innovation. Employees should be treated fairly and respectfully despite differences and should feel accepted in the workplace to contribute their perspective and be valued.
We offer our customers a high degree of flexibility and customization by providing a broad array of server models and configurations from which they can choose the best solutions to fit their computing needs. Our server and storage systems, sub-systems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability.
We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure, including liquid-cooling operations. We offer our customers a high degree of flexibility and customization by providing a broad array of server models and configurations from which they can choose the best solutions to fit their computing needs.
In recent years, we have experienced increased competition from original design manufacturers ("ODMs”) that benefit from their scale and very low-cost manufacturing and are increasingly offering their own branded products.
In recent years, we have experienced increased competition from original design manufacturers ("ODMs”) that benefit from their scale and very low-cost manufacturing and are increasingly offering their own branded products. We believe our principal competitors include: • Global technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, and Lenovo; and • ODMs, such as Foxconn, Quanta Computer, and Wiwynn Corporation.
We believe that the combination of our focus on internal research and development activities, our close working relationships with customers and vendors and our modular design approach allows us to decrease time-to-market. We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our Total IT Solutions.
We believe that the combination of our focus on internal research and development activities, our close working relationships with local customers and vendors and our modular design approach allows us to decrease time-to-market, improve quality and deliver superior product designs.
We encourage opportunities for growth and conduct regular performance reviews that set clear expectations to motivate employees and align their performance with company objectives. Supermicro Portal, our internal intranet, was created to keep employees informed about key changes to our business and company-wide resources.
We encourage opportunities for growth and conduct regular performance reviews that set clear expectations to motivate employees and align their performance with company objectives. We communicate to our employees through a secure intranet site, executive communications, company meetings, and business-related emails.
We also identify service requirements, create and execute project plans, conduct verification testing and training and provide technical documentation. Global Services: Our strategic direct and OEM customers may purchase a variety of on-site support service plans.
Supermicro Global Services We provide global service and support offerings for our direct and OEM customers and our indirect sales channel partners directly or through approved distributors and third-party partners. We also identify service requirements, create and execute project plans, conduct verification testing and training and provide technical documentation.
Our research and development teams focus on the development of new and enhanced products that can support emerging technological and engineering innovations while achieving high overall system performance. Much of our research and development activity relates to the new product cycles of leading processor vendors.
We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our Total IT Solutions. Our research and development teams focus on the development of new and enhanced products that can support emerging technological and engineering innovations while achieving high overall system performance.
As of June 30, 2023, we had over 2,400 employees in our research and development organization. These resources, along with our understanding of complex computing and storage requirements, enable us to deliver product innovation featuring advanced functionality and capabilities required by our customers.
These resources, along with our understanding of complex computing and storage requirements, enable us to deliver product innovation featuring advanced functionality and capabilities required by our customers. Also, we have worldwide manufacturing facilities which enable us to reduce the time to delivery in every geography around the world.
Sales to customers located outside of the United States represented 32.1%, 41.6% and 40.7% of net sales in fiscal years 2023, 2022 and 2021, respectively. Marketing Our marketing programs are designed to create a global awareness and branding for our company and products, as well as an understanding of the significant value we bring to customers.
Marketing SMCI | 2024 Form 10-K | 5 Our marketing programs are designed to create a global awareness and branding for our company and products, as well as an understanding of the significant value we bring to customers.
Our direct sales force is primarily focused on selling Total IT Solutions, including management software and global services to large scale cloud, enterprise and OEM customers. In addition, we are planning to offer optimized products with our command-center-based services, starting with a comprehensive product auto-configurator. The command center is the foundation of our expanding B2C and B2B programs.
Sales and Marketing Our sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners. Our direct sales force is primarily focused on selling Total IT Solutions, including management software and global services to large scale cloud, enterprise and OEM customers.
The principal competitive factors in our market include the following: • First to market with new emerging technologies; • High product performance, efficiency and reliability; • Early identification of emerging opportunities; • Cost-effectiveness; • Interoperability of products; • Scalability; and • Localized and responsive customer support on a worldwide basis.
The principal competitive factors in our market include the following: SMCI | 2024 Form 10-K | 6 • Rack Scale Total IT Solutions to reduce TCO for our customers; • First to market with new emerging technologies; • High product performance, efficiency and reliability; • Early identification of emerging opportunities; • Cost-effective design and manufacturing; • Sufficient manufacturing capacity necessary to support market demand; • Energy efficient (Green Computing) product designs that reduce environmental impact, overall power consumption, and costs; and • Localized and responsive customer support on a worldwide basis.
SMCI | 2023 Form 10-K | 2 Products and Services We offer a broad range of accelerated compute platforms that are application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories, which can be used to build complete server and storage systems.
This strategic expansion aims to serve our customers more efficiently while reducing overall manufacturing costs. Products and Services We offer a broad range of compute, storage and edge platforms that are application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories.
Our sales and marketing activities operate through a combination of our direct sales force and indirect sales channel partners. We work with distributors, value-added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers in our indirect sales channels.
We work with distributors, value-added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers in our indirect sales channels. Strategy Our objective is to be the world’s leading provider of Rack Scale Total IT Solutions leveraging our broad portfolio of platforms that are application-optimized high-performance server, storage and networking solutions.
Driving Software and Services Sales to our Global Enterprise Customers We seek to grow our global enterprise revenue by bolstering and expanding our software management products and support services. These software products and services are required for large scale deployments, help meet service level agreements and address uptime requirements.
This enables data center operators to closely monitor the entire IT infrastructure to identify issues before failures. By offering management software and worldwide onsite and remote services to our customers we also increase our total IT solution revenue. These software products and services are required for large-scale deployments, help meet service level agreements and address uptime requirements.
In addition, over the three years ended June 30, 2023, we have sold to thousands of end users through our indirect sales channel. These customers represent a diverse set of market verticals including enterprise data centers, cloud computing, AI, 5G and edge computing markets.
During each of the fiscal years ended June 30, 2023 (“fiscal year 2023”) and June 30, 2022 (“fiscal year 2022”), we sold to over 1,000 direct customers in over 100 countries. In addition, over the three years ended June 30, 2024, we have sold to thousands of end users through our indirect sales channel.
Through our strategy, we seek to maintain or improve our relative competitive position in many product areas and pursue markets that provide us with additional long-term growth opportunities. Key elements of our strategy include executing upon the following: A Strong Internal Research and Development and Internal Manufacturing Capability We are continually investing in our engineering organization.
Achieving this objective requires continuous development and innovation of our Total IT Solutions portfolio with better price-performance and architectural advantages compared with our prior generation of solutions and our competitors' offerings. Through our strategy, we seek to maintain or improve our relative competitive position in many product areas and pursue markets that provide us with additional long-term growth opportunities.
In each of fiscal years 2023, 2022 and 2021, no customer represented greater than 10% of our total net sales. Sales and Marketing Our sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners.
We are in the process of adding capacity at our existing sites and are adding a new facility in Malaysia. Our sales and marketing activities operate through a combination of our direct sales force and indirect sales channel partners.
We seek to be the first to market with products incorporating new technologies and to offer the broadest selection of products using those technologies to our customers. To reduce the high cost of operating datacenters, IT managers increasingly turn to suppliers of high-performance products that are also cost-effective, energy-efficient, and green.
SMCI | 2024 Form 10-K | 2 Liquid Cooling To reduce the high cost of operating and address constraints on power and cooling in data centers, IT managers increasingly turn to suppliers of high-performance products that can also be cost-effective, energy-efficient, and green. Our resource saving architecture supports our efforts to lead in green IT innovation.
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Item 1. Business Our Company We are a Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence (“AI”), 5G and edge computing.
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Item 1. Business Our Company We are a Silicon Valley-based provider of total IT solutions which address demanding workloads from the enterprise and cloud to the intelligent edge.
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Our Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack scale solutions, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure.
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We deliver rack-scale solutions optimized for various workloads, including artificial intelligence (“AI”) and high-performance computing (“HPC”), where acceleration is critical and we also produce an extensive portfolio of server and storage solutions for enterprise data centers, cloud service providers, and edge computing (5G Telco, Retail and embedded).
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Our resource saving architecture supports our efforts to lead in green IT innovation. This architecture disaggregates CPU and memory, which enables each resource to be refreshed independently, thereby allowing data centers to significantly reduce both refresh cycle costs and e-waste.
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Our Total IT Solutions encompass complete servers, storage systems, modular blade servers, workstations, full-rack scale solutions, networking devices, server sub-systems, server management and security software. These turn-key solutions are designed, developed, validated and installed for leading AI datacenters. Our Total IT Solutions are designed for optimal power and thermal management, including using Supermicro’s state-of-the-art liquid cooling technologies.
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Strategy Our objective is to be the world’s leading provider of solutions using accelerated compute platforms that are application-optimized offering high-performance server, storage and networking. Achieving this objective requires continuous development and innovation of our Total IT Solutions with better price-performance and architectural advantages compared with our prior generation of solutions and with solutions offered by our competitors.
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Our server and storage systems, sub-systems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability.
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Also, substantially all of our servers are tested and assembled in our facilities, and more than half of our final server and storage production is completed in San Jose, California. Our engineering aptitude, coupled with our internal manufacturing capability, enables rapid prototyping and product roll-out, contributing to a high level of responsiveness to our customers.
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We seek to be the first to market with superior product designs, and we have the ability to offer a broad selection of products using those technologies to our customers. SMCI | 2024 Form 10-K | 1 We conduct our operations principally from our Silicon Valley headquarters, Taiwan and Netherlands facilities.
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This allows us to offer customers a broad choice of products to match their target application requirements. In fiscal year 2023, we announced more than 50 products supporting Intel’s new Sapphire Rapids data center CPU. During the second half of fiscal year 2023, our product portfolio was enhanced to support AMD’s Genoa data center CPU.
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Key elements of our strategy include executing upon the following: Strong Internal Research and Development and Internal Manufacturing Capability We are continually investing in our engineering organization. As of June 30, 2024, we had over 2,800 employees in our research and development organization.
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In March 2023, we released a high-density petascale class all-flash NVMe server family supporting next-generation EDSFF form factor, including the E3.S and E1.S devices.
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We seek these advantages by leveraging our in-house design capabilities and our Building Block Solutions® architecture. This allows us to offer customers a broad choice of products to match their target application requirements.
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Also in March 2023, we unveiled comprehensive portfolio of GPU systems including servers in 8U, 6U, 5U, 4U, 2U, and 1U form factors, as well as workstations that support the full range of new NVIDIA H100 GPUs.
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In particular, during the fiscal year ended June 30, 2024 (“fiscal year 2024”), • We delivered a comprehensive portfolio of solutions designed specifically for AI including products that support NVIDIA Hopper (H100/200) and Blackwell (GB200/B200) generation platforms; • We expanded our liquid cooled system offerings and our complete liquid cooling solutions to include an external cooling tower and more powerful Coolant Distribution Units ("CDUs") for the increased demand to cool the latest generations of GPUs and central processing units ("CPUs"); • We announced more than 100 products supporting Intel’s new 5 th Gen Intel® Xeon® Processor and Intel’s Xeon ® 6 data center CPU as well as the AMD EPYC™ 8004 Series and AMD EPYC™ 4004 Series Processors; • We announced a number of new edge and IoT systems that are specifically designed for environments where low-powered systems are required; and • We expanded our storage portfolio of products and solutions with an AI storage solution optimized for large-scale AI training workloads and introduced new storage products for enterprise scale-up storage.
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These Total IT Solutions and products are designed to serve a variety of markets, such as enterprise data centers, cloud computing, AI and 5G/edge computing.
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We design, build, test, validate, and deliver complete in-house liquid-cooled direct-to-chip cold plate solutions for CPUs, GPUs, and memory. In addition, we manufacture the sophisticated management systems -- Cooling Distribution Units, Cooling Distribution Manifolds -- to regulate system temperatures for maximum performance.
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The percentage of our net sales represented by sales of server and storage systems increased to 92.2% in fiscal year 2023 compared to 85.9% in fiscal year 2022 and 78.4% in fiscal year 2021, and the percentage of our net sales represented by sales of subsystems and accessories was 7.8% in fiscal year 2023, 14.1% in fiscal year 2022 and 21.6% in fiscal year 2021.
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Liquid cooling can be easily included in rack-level integrations to further increase system efficiency, reduce instances of thermal throttling, and lower both the TCO and Total Cost to Environment ("TCE") of data center deployments. Driving Software and Services Sales to our Global Enterprise Customers We work closely with customers by offering total data center life-cycle management software.
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During fiscal year 2023, we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems and corresponding decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers which require utilization of the subcomponents.
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Our storage systems are also designed for maximum performance for AI training environments; • Twin family of multi-node server systems designed for density, performance, and power efficiency; including FlexTwin™, GrandTwin®, and BigTwin®; SMCI | 2024 Form 10-K | 3 • Hyper, CloudDC, and WIO rackmount optimized systems deliver entire clusters of racks, with both liquid-cooled and air-cooled options, per customer requirements; • Embedded (5G/IoT/Edge) systems optimized for evolving networks and intelligent management of connected devices; and • MicroCloud server systems that deliver node density in environments with space and power constraints.
Removed
SMCI | 2023 Form 10-K | 3 Supermicro Global Services We provide global service and support offerings for our direct and OEM customers and our indirect sales channel partners directly or through approved distributors and third-party partners. Our services include server and storage system integration, configuration and software upgrades and updates.
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Our customer support team provides ongoing maintenance and technical support for our products through our website and 24-hour continuous, direct phone-based support. Data Center Space Lease On June 14, 2024, we entered into a Master Colocation Services Agreement (the “MCSA”) with respect to a multi-tenanted facility located in Vernon, California.
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We believe our principal competitors include: • Global technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, and Lenovo; • ODMs, such as Foxconn, Quanta Computer, and Wiwynn Corporation; and • OEMs, such as Inspur.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

167 edited+189 added−41 removed146 unchanged
Biggest changeFactors that may affect quarterly operating results include: • Fluctuations in demand for our products, in part due to changes in the global economic environment; • Fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker; SMCI | 2023 Form 10-K | 11 • Continuing lingering effects from the COVID-19 pandemic, the occurrence of other global pandemics, and other events that impact the global economy or one or more sectors thereof, such as the global economic downturn and recent events in eastern Europe; • The ability of our customers and suppliers to obtain financing or fund capital expenditures; • Fluctuations in the timing and size of large customer orders, including with respect to changes in sales and implementation cycles of our products into our customers’ spending plans and associated revenue; • Variability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions; • Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements; • The timing of the introduction of new products by leading microprocessor vendors and other suppliers; • The introduction and market acceptance of new technologies and products, and our success in emergent and rapidly evolving markets (such as AI), and incorporating emerging technologies in our products, as well as the adoption of new standards; • Changes in our product pricing policies, including those made in response to new product announcements and fluctuations in availability and costs of key components; • Mix of whether customer purchases are of partially or fully integrated systems or subsystems and accessories and whether made directly or through our indirect sales channel partners; • The effect of mergers and acquisitions among our competitors, suppliers, customers, or partners; • General economic conditions in our geographic markets; • Geopolitical tensions, including trade wars, tariffs and/or sanctions in our geographic markets; and • Impact of regulatory changes on our cost of doing business.
Biggest changeFactors that may affect quarterly operating results include: • The circumstances discussed in the Explanatory Note in this Annual Report; • Fluctuations in demand for our products, in part due to factors such as changes in emergent and rapidly evolving markets (such as AI) and changes in the global economic environment; • Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements; • The timing of the introduction of new products by leading microprocessor vendors and other suppliers; • Fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker; • The ability of our customers and suppliers to obtain financing or fund capital expenditures; • Fluctuations in the timing and size of large customer orders, including with respect to changes in sales and implementation cycles of our products into our customers’ spending plans and associated revenue; • Variability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions; • The introduction and market acceptance of new technologies and products, and our success in emergent and rapidly evolving markets (such as AI), and incorporating emerging technologies in our products, as well as the adoption of new standards; • Changes in our product pricing policies, including those made in response to new product announcements and fluctuations in availability and costs of key components; • Mix of whether customer purchases are of partially or fully integrated systems or subsystems and accessories and whether made directly or through our indirect sales channel partners; • The effect of mergers and acquisitions among our competitors, suppliers, customers, or partners; • General economic conditions in our geographic markets; • Geopolitical tensions, including regional conflicts, trade wars, tariffs and/or sanctions in our geographic markets; and SMCI | 2024 Form 10-K | 15 • Impact of regulatory changes (including export control) on our cost of doing business.
The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. When we issue credit in connection with large orders, in the event customers to do not pay or make timely payment our ability to collect amounts owed to us creates risk.
The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue. When we issue credit in connection with large orders, in the event customers do not pay or make timely payment, our ability to collect amounts owed to us creates risk.
To the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be adversely affected.
To the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be materially harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be materially and adversely affected.
We use Ablecom, a related party, for contract design and manufacturing coordination support and warehousing, and Compuware, also a related party and an affiliate of Ablecom, for distribution, contract manufacturing and warehousing. We work with Ablecom to optimize modular designs for our chassis and certain of other components.
We use Ablecom, a related party, for contract design and manufacturing coordination support and warehousing, and Compuware, also a related party and an affiliate of Ablecom, for distribution, contract manufacturing and warehousing. We work with Ablecom to optimize modular designs for our chassis and certain other components.
In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.
In addition, our business could be adversely affected in the periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.
Our future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows. We receive significant tax benefits from sales to our non-U.S. customers.
Our future effective income tax rates could be affected by changes in the relative mix of our operations, our relative income among different geographic regions and domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows. We receive significant tax benefits from sales to our non-U.S. customers.
All of our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act.
All our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act.
Our most significant business offices, research and development, and manufacturing locations, are in the San Jose, California area and in Taiwan. We are also in the process of developing manufacturing operations in Malaysia. Each region is subject to climate change events and known for earthquakes.
Our most significant business offices, research and development, and manufacturing locations, are in the San Jose, California area and in Taiwan. We are also in the process of developing manufacturing operations in Malaysia. Each region is subject to climate change events and is known for earthquakes.
The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in material interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.
Furthermore, if we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations.
If we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations.
General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments. Furthermore, continued weakness and uncertainty in worldwide credit markets may harm our customers’ available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions.
General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments. Furthermore, weakness and uncertainty in worldwide credit markets may harm our customers’ available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions.
Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors. If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such investment in research and development, our earnings may be materially and adversely affected.
Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors. If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such an investment in research and development, our earnings may be materially and adversely affected.
Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment.
Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems, integrating processes that occur in other IT applications, or updating systems could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment.
We could lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.
We could also lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.
We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for internet data center and cloud customers and other large sale opportunities.
We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for data center and cloud customers and other large sale opportunities.
Also, suppliers of our key components may introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers.
Conversely, suppliers of our key components may also introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers.
Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer. These changes could have a significant impact on the market and impact our results of operations.
Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer. These changes could have a significant impact on the market and impact the results of operations.
As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and results of operations. Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.
As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and the results of operations. Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.
Increased sales to larger customers may also cause fluctuations in results of operations. Large orders are generally subject to intense competition and pricing pressure which can have an adverse impact on our margins and results of operations.
Increased sales to larger customers may also cause fluctuations in the results of operations. Large orders are generally subject to intense competition and pricing pressure which can have an adverse impact on our margins and results of operations.
Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period of time during which the customer either does not purchase any products or only a small number of our products.
Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period during which the customer either does not purchase any products or only a small number of our products.
As our business continues to grows, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to.
As our business continues to grow, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to.
Breaches of our or any of our third party suppliers’ security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business.
Breaches of our or any of our third party suppliers’ security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a material risk of loss or misuse of this information, result in litigation and potential material liability for us, materially damage our brand and reputation or otherwise materially harm our business.
We have become increasingly dependent upon larger sales to grow our business. In particular, in recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs.
We have become increasingly dependent upon larger sales to grow our business. In recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs.
If issued, we undertake no obligation to update any forward-looking guidance at any time. In the past, our financial results have failed to meet the guidance we provided.
If issued, we undertake no obligation to update any forward-looking guidance at any time. In the past, our financial results have failed from time to time to meet the guidance we provided.
However, we cannot assure that such measures will be effective to collect on all or part of any such credit issued. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue. We plan our operating expense levels based primarily on forecasted revenue levels.
However, we cannot be assured that such measures will be effective to collect on all or part of any such credit issued. As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue. We plan our operating expense levels based primarily on forecasted revenue levels.
Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial. We do not expect to pay any cash dividends for the foreseeable future.
Corporate action might be taken even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial. We do not expect to pay any cash dividends in the foreseeable future.
While we had greater than normal backlog during certain periods of fiscal year 2023, historically, our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter.
While we had greater than normal backlog during certain periods of fiscal year 2024, historically, our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter.
Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.
Furthermore, we may not execute successfully on our vision or strategy because of challenges with regards to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.
In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expense.
In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expenses.
In particular, Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction. Mr. Liang co-founded our company and has been our Chief Executive Officer since our inception.
Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction. Mr. Liang co-founded our company and has been our Chief Executive Officer since our inception.
See Note 10, Stock-based Compensation and Stockholders’ Equity in the Notes to Consolidated Financial Statements. The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.
See Note 11, "Stock-based Compensation and Stockholders’ Equity" in the Notes to Consolidated Financial Statements. The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.
We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cyber-security matters. Despite these efforts, we may experience future intrusions, which could adversely affect our business, operations, or products.
We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cybersecurity matters. Despite these efforts, we may experience future intrusions, which could materially and adversely affect our business, operations, or products.
Our quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price. We believe that our quarterly operating results will continue to be subject to fluctuation due to various factors, many of which are beyond our control.
Operational and Execution Risks Our quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price. We believe that our quarterly operating results will continue to be subject to fluctuation due to various factors, many of which are beyond our control.
We g enerally provide forward looking financial guidance when we announce our financial results for the prior quarter. No assurances can be given that we will continue to provide forward looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance.
We generally provide forward-looking financial guidance when we announce our financial results for the prior quarter. No assurances can be given that we will continue to provide forward-looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance.
If we raise additional capital through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock.
If we raise additional capital through additional future issuances of equity or equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock.
Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision.
Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire enough qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision.
Furthermore, additional tranches of the 2021 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the “Annualized Revenue Milestones”) and a matching stock price milestone, and if such additional tranches do vest, they would be subject to the risks discussed above.
Furthermore, tranches of the 2023 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the “Annualized Revenue Milestones”) and a matching stock price milestone, and if such tranches do vest, they would be subject to the risks discussed above.
If we are unable to hire, develop and retain sufficient numbers of productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer. Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations.
If we are unable to hire, develop and retain enough productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer. Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations.
Legal and Regulatory Risks Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change.
Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change.
The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.
The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses to comply and increase our potential exposure to regulatory enforcement and/or litigation.
SMCI | 2023 Form 10-K | 22 Many of our competitors enjoy substantial competitive advantages, such as: • Greater name recognition and deeper market penetration; • Longer operating histories; • Larger sales and marketing organizations and research and development teams and budgets; • More established relationships with customers, contract manufacturers and suppliers and better channels to reach larger customer bases and larger sales volume allowing for better costs; • Larger customer service and support organizations with greater geographic scope; • A broader and more diversified array of products and services; and • Substantially greater financial, technical and other resources.
Many of our competitors enjoy substantial competitive advantages, such as: • Greater name recognition and deeper market penetration; • Longer operating histories; • Larger sales and marketing organizations and research and development teams and budgets; • More established relationships with customers, contract manufacturers and suppliers and better channels to reach larger customer bases and larger sales volume allowing for better costs; • Larger customer service and support organizations with greater geographic scope; • A broader and more diversified array of products and services; and • Substantially greater financial, technical and other resources.
Further, our association with these parties could subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, or the general public.
Further, our association with these parties could subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, government enforcement agencies, or the general public.
The lenders called the loans in October 2018, following the suspension of our common stock from trading on NASDAQ in August 2018 and the decline in the market price of our common stock in October 2018. As of June 30, 2023, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.0 million.
The lenders called the loans in October 2018, following the suspension of our common stock from trading on NASDAQ in August 2018 and the decline in the market price of our common stock in October 2018. As of June 30, 2024, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.4 million.
In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying the 2021 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements. See “Item 11.
In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying each of the 2021 CEO Performance Award and the 2023 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements.
We outsource to Compuware a portion of our design activities and a significant part of our manufacturing of subassemblies, particularly power supplies. Our purchases of products from Ablecom and Compuware represented 6.6%, 8.3% and 7.8% of our cost of sales for fiscal years 2023, 2022 and 2021, respectively.
We outsource to Compuware a portion of our design activities and a significant part of our manufacturing of subassemblies, particularly power supplies. Our purchases of products from Ablecom and Compuware represented 4.3%, 6.6% and 8.3% of our cost of sales for fiscal years 2024, 2023 and 2022, respectively.
Costs to comply with and implement these privacy-related and data protection measures could be significant. SMCI | 2023 Form 10-K | 25 Global privacy legislation, enforcement, and policy activity for privacy and data protection are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant.
Costs to comply with and implement these privacy-related and data protection measures could be significant. SMCI | 2024 Form 10-K | 33 Global privacy legislation, enforcement, and policy activity for privacy and data protection are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant.
SMCI | 2023 Form 10-K | 15 We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory. To offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory.
SMCI | 2024 Form 10-K | 16 We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory. To offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory.
Executive Compensation – Compensation Discussion and Analysis (“CD&A”) – Fiscal Year 2023 CEO Compensation – Discussion and Analysis of 2021 CEO Performance Award.” If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.
See “Item 11. Executive Compensation – Compensation Discussion and Analysis (“CD&A”) – Fiscal Year 2024 CEO Compensation – Discussion and Analysis of 2023 CEO Performance Award.” If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.
If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, it may further affect the value of our investment in the corporate venture.
If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, or if additional export control restrictions are placed on additional products, it may further affect the value of our investment in the corporate venture.
In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant. Any failure to adequately expand or retain our sales force will impede our growth. We expect that our direct sales force will continue to grow as larger customers increasingly require a direct sales approach.
In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant. SMCI | 2024 Form 10-K | 22 Any failure to adequately expand or retain our sales force will impede our growth. We expect that our direct sales force will continue to grow as larger customers increasingly require a direct sales approach.
In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as those related to the COVID-19 pandemic and lingering effects therefrom.
In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as periods of supply constraint of key components and those related to lingering effects of the COVID-19 pandemic.
The Federal Reserve has significantly raised, and may again raise, interest rates in response to concerns over inflation risk, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, reduce technology expenditures and demand for our Total IT Solutions.
In response to inflation, the Federal Reserve had significantly raised, and may again raise, interest rates, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, reduce technology expenditures and demand for our Total IT Solutions.
In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.
In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or other similar applicable laws and regulations.
Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as: • Heightened price sensitivity from customers in emerging markets; • Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets; • Localization of our systems and components, including translation into foreign languages and the associated expenses; • Compliance with multiple, conflicting and changing governmental laws and regulations; • Foreign currency fluctuations and inflation; • Limited visibility into sales of our products by our channel partners; • Greater concentration of competitors in some foreign markets than in the United States; • Laws favoring local competitors; • Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights; • Market disruptions created by world events, such as the global economic downturn and recent events in eastern Europe, or by other public health crises in regions outside the United States, such as avian flu, SARS and other diseases; • Import and export tariffs; • Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions; and • Changing regional economic and political conditions.
Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as: • Heightened price sensitivity from customers in emerging markets; • Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets; • Localization of our systems and components, including translation into foreign languages and the associated expenses; • Compliance with multiple, conflicting and changing governmental laws and regulations (including rapid developments in the area of export control particularly for high-end restricted GPU products); • Foreign currency fluctuations and inflation; • Limited visibility into sales of our products by our channel partners; • Greater concentration of competitors in some foreign markets than in the United States; • Laws favoring local competitors; • Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights; • Market disruptions created by world events, such as a global economic downturn, regional conflicts, or by other public health crises (such as COVID-19, avian flu, SARS and other diseases); • Import and export tariffs; • Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions; and • Changing regional economic and political conditions.
In June 2020, the third-party parent company that controls our corporate venture was placed on a U.S. government export control list, along with several related entities. In addition, the United States has further prohibitions on conducting business with certain entities in China and continued to impose additional tariffs.
In June 2020, the third-party parent company that controls our corporate venture was placed on a U.S. government export control list, along with several related entities. In addition, the United States has further prohibitions on conducting business with certain entities in China, continued to impose additional tariffs, and has placed export control restrictions on products which contain high-end GPUs.
SMCI | 2023 Form 10-K | 12 As we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable.
As we increasingly target larger customers and sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable.
SMCI | 2023 Form 10-K | 19 If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.
If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.
The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business. Our direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.
The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business. SMCI | 2024 Form 10-K | 24 Our direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.
If our customers do not purchase our products, our business will be harmed. SMCI | 2023 Form 10-K | 21 The process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed.
If our customers do not purchase our products, our business will be harmed. The process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed.
Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2023 and 2022 was $2.0 million and $5.3 million, respectively. We currently do not intend to make any additional investment in this corporate venture.
Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2024 and 2023 was $4.6 million and $2.0 million, respectively. We currently do not intend to make any additional investment in this corporate venture.
We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property. SMCI | 2023 Form 10-K | 28 Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.
We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.
Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price. Item 1B.
Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, make complete or accurate statements with respect to such matters, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price.
Steve Liang owned no shares of our common stock as of June 30, 2023, 2022 or 2021. Charles Liang and his spouse, Sara Liu, our Co-Founder, Senior Vice President and Director, jointly owned approximately 10.5% of Ablecom’s capital stock, while Mr. Steve Liang and other family members owned approximately 28.8% of Ablecom’s outstanding common stock as of June 30, 2023.
Steve Liang owned no shares of our common stock as of June 30, 2024, 2023 or 2022. Charles Liang and his spouse, Sara Liu, our Co-Founder, Senior Vice President and Director, jointly owned approximately 10.5% of Ablecom’s capital stock, while Mr. Steve Liang and his family members owned approximately 35.0% of Ablecom’s outstanding common stock as of June 30, 2024.
In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition.
In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition. Our business depends on the overall demand for accelerated compute platforms.
In particular, we have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations. Our international expansion efforts may not be successful.
We have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations. SMCI | 2024 Form 10-K | 29 Our international expansion efforts may not be successful.
As of July 31, 2023, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 42.3% of our common stock, net of treasury stock. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions.
As of January 31, 2025, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 38.5% of our common stock, net of treasury stock. As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions.
System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could disrupt our internal operations or compromise the security of our products, and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.
SMCI | 2024 Form 10-K | 21 System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could materially disrupt our internal operations or compromise the security of our products, and any such disruption could materially reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.
In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe. The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations.
In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the prior COVID-19 pandemic, a global economic downturn and regional conflict. The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations.
Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, serverboards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales.
Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, server boards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales. GPUs have represented an increasing portion of our cost of sales.
Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI).
Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders and warranty claims, which in some cases require the provision of replacement solutions, because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI).
If Ablecom or Compuware are acquired or sold, new ownership could reassess the business and strategy of Ablecom or Compuware, and as a result, our supply chain could be disrupted or the terms and conditions of our agreements with Ablecom or Compuware may change.
SMCI | 2024 Form 10-K | 23 If Ablecom or Compuware are acquired or sold, new ownership could reassess the business and strategy of Ablecom or Compuware, and as a result, our supply chain could be disrupted or the terms and conditions of our agreements with Ablecom or Compuware may change.
SMCI | 2023 Form 10-K | 18 If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.
If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.
SMCI | 2023 Form 10-K | 26 Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition.
Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition.
Inflation in the U.S. has recently increased at a rate not seen in several decades, which may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending and volatility in financial markets.
While recently moderating, inflation in the U.S. had increased at a rate not seen in several decades. A recurrence of high inflation may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending and volatility in financial markets.
While we have adopted a business continuity plan and are taking steps to further diversify our manufacturing locations, there is no certainty it will be effective for significant natural disasters, which could have a material adverse impact on business, operating results, and financial condition. The use of AI by our workforce may present risks to our business.
While we have adopted a business continuity plan and are taking steps to further diversify our manufacturing locations, there is no certainty it will be effective for significant natural disasters, which could have a material adverse impact on business, operating results, and financial condition.
Item 1A. Risk Factors The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our business, financial condition, results of operations, cash flows, other key metrics and the trading price of our common stock.
Item 1A. Risk Factors Our business involves significant risks, some of which are described below. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our business, financial condition, results of operations, cash flows, other key metrics and the trading price of our common stock.
In connection therewith, the Company has determined that the Annualized Revenue Milestones that have not yet been achieved are “probable of achievement,” for purposes of determining whether to recognize expense associated with the applicable tranche. Such determination is based upon management’s subjective judgment and is not a guarantee that it will be achieved.
In connection therewith, the Company has determined that all five Annualized Revenue Milestones specified in the 2023 CEO Performance Award are “probable of achievement,” for purposes of determining whether to recognize expense associated with the applicable tranche. Such determination is based upon management’s subjective judgment and is not a guarantee that it will be achieved.
Ablecom and Compuware’s sales to us constitute a substantial majority of Ablecom’s and Compuware’s net sales. Ablecom and Compuware are both privately held Taiwan-based companies. In addition, we have entered into a distribution agreement with Compuware, under which we have appointed Compuware as a nonexclusive distributor of our products in Taiwan, China and Australia.
Ablecom and Compuware’s sales to us constitute a substantial majority of Ablecom’s and Compuware’s net sales. Ablecom and Compuware are both privately held Taiwan-based companies. In addition, we have appointed Compuware as a nonexclusive authorized distributor of our products in Taiwan, China and Australia.
Similar future events may cause additional interruptions on the global supply chain. Two of our suppliers accounted for 13.5% and 30.7% of total purchases for the fiscal year ended June 30, 2023. The same two suppliers accounted for 18.1% and 11.4% of total purchases for the fiscal year ended June 30, 2022.
Similar future events may cause additional interruptions in the global supply chain. Two of our suppliers accounted for 65.4% and 6.3% of total purchases for fiscal year 2024. The same two suppliers accounted for 30.7% and 13.5% of total purchases for fiscal year 2023. The same two suppliers accounted for 11.4% and 18.1% of total purchases for fiscal year 2022.
Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the COVID-19 pandemic, the global economic downturn, and recent events in eastern Europe) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI).
Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the prior COVID-19 pandemic, prior global economic downturns, and emergence of regional conflicts) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI).

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAdditionally, we own 36 acres of land in San Jose, California that would allow us to expand our Green Computing Park. We completed the construction of our third new manufacturing and warehouse building with approximately 209,000 square feet of space in June 2021.
Biggest changeOn September 18, 2024, we entered into an agreement for approximately 63,177 square feet of office and manufacturing space in Milpitas, California under a new lease that expires in August 2035. Additionally, we own 36 acres of land in San Jose, California that would allow us to expand our Green Computing Park.
We lease approximately 5,000 square feet of office space in Jersey City, New Jersey under a lease that expires in July 2025, lease approximately 46,000 square feet of office space in San Jose, California under a lease that expires in January 2028, lease approximately 246,000 square feet of warehouse space in Fremont, California under a lease that expires in July 2025, lease approximately 28,000 square feet of warehouse space in Milpitas, California under a lease that expires in March 2027.
We lease approximately 259,000 square feet of warehouse space in San Jose, California under a lease that expires in October 2030, lease approximately 246,000 square feet of warehouse space in Fremont, California under a lease that expires in July 2025, lease approximately 46,000 square feet of office space in San Jose, California under a lease that expires in January 2028, lease approximately 28,000 square feet of warehouse space in Milpitas, California under a lease that expires in March 2027, and lease approximately 5,000 square feet of office space in Jersey City, New Jersey under a lease that expires in July 2025.
Our European headquarters for manufacturing and service operations is located in Den Bosch, the Netherlands where we own approximately 12,000 square feet of office and we lease approximately 203,000 square feet of office and manufacturing space under five leases, which expire in June 2026.
SMCI | 2024 Form 10-K | 44 Our European headquarters for manufacturing and service operations is located in Den Bosch, the Netherlands where we own approximately 12,000 square feet of office space and lease approximately 203,000 square feet of office and manufacturing space under five leases, which expire in June 2026.
Our research and development center, service operations, and warehouse space in Asia are located in an approximately 118,000 square feet facility in Taipei and Hsinchu, Taiwan under fourteen leases that expire at various dates ranging from January 2024 through February 2026 and an approximately 42,000 square feet facility in Taoyuan, Taiwan under three leases that expire in December 2023.
Our research and development center, service operations, and warehouse space in Asia are in an approximately 133,000 square feet facility in Taipei and Hsinchu, Taiwan under sixteen leases that expire at various dates ranging from February 2025 through March 2029 and an approximately 93,000 square feet facility in Taoyuan, Taiwan under four leases that expire from at various dates ranging from June 2026 through December 2028.
Item 2. Properties SMCI | 2023 Form 10-K | 32 As of June 30, 2023, we owned approximately 2,273,000 square feet and leased approximately 720,000 square feet of office and manufacturing space. Our long-lived assets located outside of the United States represented 36.8%, 36.8% and 34.4% of total value of long-lived assets in fiscal years 2023, 2022 and 2021, respectively.
Item 2. Properties As of June 30, 2024, we owned approximately 2,483,000 square feet and leased approximately 1,046,000 square feet of office and manufacturing space, which does not include any leases executed but not commenced. Our long-lived assets, excluding leases, located outside of the United States represented 31.9% of total value of long-lived assets in fiscal year 2024.
See Part II, Item 8, Note 14, “Segment Reporting” to the consolidated financial statements in this Annual Report for a summary of long-lived assets by geographic region. Our principal executive offices, research and development center and production operations are located in San Jose, California where we own approximately 1,307,000 square feet of office and manufacturing space.
Our principal executive offices, research and development center and production operations are in San Jose, California where we own approximately 1,517,000 square feet of office and manufacturing space.
In Asia, our manufacturing facilities are located in Taoyuan County, Taiwan where we own approximately 954,000 square feet of office and manufacturing space on 6.77 acres of land. These manufacturing facilities are pledged as security under the existing term loans with $38.2 million remaining outstanding as of June 30, 2023.
As of August 1, 2024, we took possession of an additional approximately 147,000 square feet of office and warehouse space under a new lease that expires in August 2029. In Asia, our manufacturing facilities are in Taoyuan County, Taiwan where we own approximately 954,000 square feet of office and manufacturing space on 6.77 acres of land.
In fiscal year 2023, we continued to engage several contractors for the development and construction of improvements on the property. We financed this development through our operating cash flows and borrowings from banks. See Part II, Item 8, Note 7, “Short-term and Long-term Debt” to the consolidated financial statements in this Annual Report for a discussion of our company's debt.
See Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements in this Annual Report for a discussion of our debt.
Removed
Subsequent to June 30, 2023, we entered into a five year lease for an additional approximate 124,000 square feet of warehouse space in San Jose, California.
Added
In addition, we lease various offices, warehouses and other premises in United States and throughout the world. See Note 15, “Segment Reporting” in the Notes to the Consolidated Financial Statements in this Annual Report for a summary of long-lived assets by geographic region.
Removed
D uring the second quarter of fiscal year 2023, we entered into a letter of understanding to acquire land in Malaysia to be used to expand our manufacturing operations. A definitive agreement to acquire such land, subject to various conditions, was subsequently executed in January 2023. We are obtaining early access to such land prior to acquisition.
Added
On February 9, 2024, we consummated the purchase of certain real estate for $80.0 million in San Jose, California. Such purchased real estate was previously under lease, leading to the de-recognition of the related ROU asset of $7.9 million and lease liability of $8.3 million.
Removed
We believe that our existing properties, including both owned and leased, are in good condition and are suitable for the conduct of our business.
Added
We completed the construction of our third new manufacturing and warehouse building with approximately 209,000 square feet of space in June 2021. We financed this development through our operating cash flows and borrowings from banks.
Added
These manufacturing facilities are pledged as security under the existing loans with $55.7 million remaining outstanding as of June 30, 2024.
Added
We are also adding a new manufacturing facility in Malaysia. We believe that our existing facilities in San Jose, California, Taiwan, and Netherlands and the development of our new facility in Malaysia are suitable and adequate for our present purposes and that the productive capacity of such facilities is substantially being utilized or we have plans to utilize such capacity.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information required by this item is incorporated herein by reference to the information set forth under the caption “Litigation and Claims” in Part II, Item 8, Note 12 “Commitments and Contingencies” of our notes to the consolidated financial statements included in this Annual Report.
Biggest changeItem 3. Legal Proceedings The information required by this item is incorporated herein by reference to the information set forth in Note 13 “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements included in this Annual Report.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDividend Policy We have never declared or paid cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future. Under the terms of the credit agreement with Bank of America, as amended, we may not pay any dividends.
Biggest changeDividend Policy We have never declared or paid cash dividends on our capital stock. We intend to retain any future earnings and do not expect to pay any dividends in the foreseeable future.
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Super Micro Computer, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be "filed" with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Super Micro Computer, Inc. under the Securities Act of 1933, as amended, (the “Exchange Act”).
The graph reflects an investment of $100 (with reinvestment of all dividends, if any) in our common stock, the Nasdaq Computer Index and the Nasdaq Composite Index on June 30, 2018, and our relative performance tracked through June 30, 2023.
The graph reflects an investment of $100 (with reinvestment of all dividends, if any) in our common stock, the Nasdaq Computer Index and the Nasdaq Composite Index on June 30, 2019, and our relative performance tracked through June 30, 2024.
Holders As of July 31, 2023, there were 20 registered stockholders of record of our common stock. Because most of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these holders of record.
Holders As of January 31, 2025, there were 19 registered stockholders of record of our common stock. Because most of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial stockholders represented by these holders of record.
Removed
SMCI | 2023 Form 10-K | 34 6/30/2018 6/30/2019 6/30/2020 6/30/2021 6/30/2022 6/30/2023 Super Micro Computer, Inc. 100.00 81.82 120.04 148.75 170.61 1,053.91 Nasdaq Composite Index 100.00 106.60 133.93 193.12 146.85 183.59 Nasdaq Computer Index 100.00 108.22 155.03 233.08 190.10 260.87 Recent Sales of Unregistered Securities None.
Added
SMCI | 2024 Form 10-K | 46 6/30/2019 6/30/2020 6/30/2021 6/30/2022 6/30/2023 6/30/2024 Super Micro Computer, Inc. 100.00 146.72 181.81 208.53 1,288.11 4,234.37 Nasdaq Composite Index 100.00 125.64 181.16 137.75 172.21 221.48 Nasdaq Computer Index 100.00 143.26 215.38 175.67 241.06 348.47 Recent Sales of Unregistered Securities None.
Removed
Issuer Purchases of Equity Securities During the three months ended June 30, 2023, we did not repurchase any shares of our common stock: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (1) Month 1 (April 1, 2023 to April 30, 2023) — $ — — $50.0 Million Month 2 (May 1, 2023 to May 31, 2023) — $ — — $50.0 Million Month 3 (June 1, 2023 to June 30, 2023) — $ — — $50.0 Million Total — $ — — (1) On August 3, 2022, after the expiration of a prior share repurchase program on July 31, 2022, a duly authorized subcommittee of our Board approved a new share repurchase program to repurchase shares of our common stock for up to $200 million at prevailing prices in the open market.
Added
Issuer Purchases of Equity Securities During the three months ended June 30, 2024, we did not repurchase any shares of our common stock. SMCI | 2024 Form 10-K | 47 Item 6. [Reserved] SMCI | 2024 Form 10-K | 48
Removed
The share repurchase program is effective until January 31, 2024 or until the maximum amount of common stock is repurchased, whichever occurs first. As of June 30, 2023, $50 million remained available under the program. SMCI | 2023 Form 10-K | 35

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOperating expenses for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Research and development $ 307.3 $ 272.3 $ 224.4 $ 35.0 12.9 % $ 47.9 21.3 % Percentage of total net sales 4.3 % 5.2 % 6.3 % Sales and marketing 115.0 90.1 85.7 24.9 27.6 % 4.4 5.1 % Percentage of total net sales 1.6 % 1.7 % 2.4 % General and administrative 99.6 102.4 100.5 (2.8) (2.7) % 1.9 1.9 % Percentage of total net sales 1.4 % 2.0 % 2.8 % Total operating expenses $ 521.9 $ 464.8 $ 410.6 57.1 12.3 % 54.2 13.2 % Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in research and development expenses was primarily driven by a $43.5 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards as we expanded our workforce and invested in key talent, and a $2.6 million increase in product development costs to support the development of next generation products and technologies, offset by a $11.1 million increase in research and development credits received from certain suppliers and customers.
Biggest changeThe year-over-year increase in research and development expenses was driven by a $43.5 million increase in employee related costs primarily due to stock-based compensation increases, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $2.6 million increase in product development costs to support the development of next generation products and technologies, offset by a $11.1 million increase in research and development credits received from certain suppliers and customers.
We evaluate our estimates on an on-going basis based on a) historical experience, b) assumptions we believe to be reasonable under the circumstances and are not readily apparent from other sources, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
We evaluate our estimates on an on-going basis based on a) historical experience, and b) assumptions we believe to be reasonable under the circumstances and are not readily apparent from other sources, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
For substantially all performance obligations, we are able to establish the SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change.
For substantially all of the performance obligations, we are able to establish the SSP based on the observable prices of products or services sold separately in comparable circumstances to similar customers. We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change.
Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled. The fair value of RSUs and PRSUs is based on the closing market price of our common stock on the date of grant.
Previously recognized compensation expense is not reversed if vested stock options, RSUs or PRSUs for which the requisite service has been rendered and the performance condition has been met expire unexercised or are not settled. The fair value of RSUs and PRSUs is based on the closing market price of our common stock on the date of the grant.
The year-over-year decrease in general and administrative expenses was primarily due to a $5.2 million decrease in professional fees and other, a $2.0 million decrease in litigation settlement expenses relating to a derivative lawsuit, partially offset by an increase of $4.4 million in compensation expenses associated with the cost of equity awards.
General and administrative expenses. The year-over-year decrease in general and administrative expenses was primarily due to a $5.2 million decrease in professional fees and other, a $2.0 million decrease in litigation settlement expenses relating to a derivative lawsuit, partially offset by an increase of $4.4 million in compensation expenses associated with the cost of equity awards.
Share of Income (Loss) from Equity Investee, Net of Taxes Share of income from equity investee, net of taxes represents our share of income (loss) from the Corporate Venture in which we have a 30% ownership.
Share of Income (Loss) from Equity Investee, Net of Taxes Share of income (loss) from equity investee, net of taxes represents our share of income (loss) from the Corporate Venture in which we have a 30% ownership.
Financing Activities Net cash used in financing activities increased by $971.2 million for fiscal year 2023 as compared to fiscal year 2022 primarily due to repurchases of our common stock for $150.0 million reflecting our commitment to return value to our shareholders and repayment of net borrowings of $813.2 million.
Net cash used in financing activities increased by $971.2 million for fiscal year 2023 as compared to fiscal year 2022 primarily due to repurchases of our common stock for $150.0 million reflecting our commitment to return value to our shareholders and repayment of net borrowings of $813.2 million.
These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses. Sales and marketing expenses consist primarily of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our sales and marketing personnel, cost for tradeshows, independent sales representative fees and marketing programs.
These amounts offset a portion of the related research and development expenses and have the effect of reducing our reported research and development expenses. Sales and marketing expenses consist primarily of personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our sales and marketing personnel, cost for tradeshows, sales representative fees and marketing programs.
All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering ("NRE") funding from certain suppliers and customers for joint development. Under these arrangements, we are reimbursed for certain research and development costs that we incur as part of the joint development efforts with our suppliers and customers.
All research and development costs are expensed as incurred. We occasionally receive non-recurring engineering funding from certain suppliers and customers for joint development. Under these arrangements, we are reimbursed for certain research and development costs that we incur as part of the joint development efforts with our suppliers and customers.
Critical Accounting Policies and Estimates General Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.
Critical Accounting Estimates General Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States.
We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the respective performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgement.
We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the respective performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgment.
Investing Activities Net cash used in investing activities was $39.5 million, $46.3 million and $58.0 million for fiscal years 2023, 2022 and 2021, respectively, as we invested in our Green Computing Park in San Jose to expand our manufacturing capacity and office, expanded our Bade Facility in Taiwan and made purchases of property, plant and equipment.
Net cash used in investing activities was $39.5 million and $46.3 million for fiscal years 2023 and 2022, respectively, as we invested in our Green Computing Park in San Jose to expand our manufacturing capacity and office space, expanded our Bade Facility in Taiwan and made purchases of property, plant and equipment.
We must also continue to expand our software and customer service and support offerings, particularly as we increasingly focus on larger enterprise customers. Additionally, we must focus on development of our sales partners and distribution channels to further expand our market share.
We must also continue to expand our software and customer service and support offerings, particularly as we increasingly focus on larger enterprise and large data center customers. Additionally, we must focus on development of our sales partners and distribution channels to further expand our market share.
Our Total IT Solutions include complete servers, storage systems, modular blade servers, blades, workstations, full rack-scale solutions, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure. We commenced operations in 1993 and have been profitable every year since inception.
Our Total IT Solutions include direct liquid-cooled and air-cooled rack-scale solutions, complete servers, storage systems, modular blade servers, blades, workstations, networking devices, server sub-systems, server management and security software. We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure. We commenced operations in 1993 and have been profitable every year since inception.
We measure our financial success based on various indicators, including growth in net sales, gross profit margin and operating margin. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions.
We measure our financial success based on various indicators, including growth in net sales, gross profit margin, operating margin, and growth in net income per common share. Among the key non-financial indicators of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions.
As a result of these favorable elements which were partially offset by certain unfavorable items including an increase in state taxes, the total effective tax rate decreased by 1%, declining from 15.7% in the fiscal year ended June 30, 2022, to 14.7% in the fiscal year ended June 30, 2023.
As a result of these favorable elements which were partially offset by certain unfavorable items including an increase in state taxes, the total effective tax rate decreased by 1%, from 15.7% in fiscal year 2022, to 14.7% in fiscal year 2023.
We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on revenue growth, productivity, expenses, service levels and customer retention) and our expected return on investment. We intend to continue to focus our capital expenditures in fiscal year 2024 to support the growth of our operations.
We evaluate capital expenditure projects based on a variety of factors, including expected strategic impacts (such as forecasted impact on net sales growth, productivity, expenses, service levels and customer retention) and our expected return on investment. We intend to continue to focus our capital expenditures in fiscal year 2025 to support the growth of our operations.
The year-over-year increase in net sales of server and storage systems was primarily due to the strong demands from such customers for GPU, high performance computing (“HPC”), and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling prices.
The year-over-year increase in net sales of server and storage systems was primarily due to the strong demands from such customers for GPU, HPC, and rack-scale solutions which are generally more complex and of higher value, resulting in an increase of average selling prices.
SMCI | 2023 Form 10-K | 39 Stock-Based Compensation We measure and recognize compensation expense for all share-based awards made to employees and non-employees, including stock options, restricted stock units ("RSUs") and performance-based restricted stock units (“PRSUs”). We recognize the grant date fair value of all share-based awards over the requisite service period and account for forfeitures as they occur.
SMCI | 2024 Form 10-K | 51 Stock-Based Compensation We measure and recognize compensation expenses for all share-based awards made to employees and non-employees, including stock options, restricted stock units ("RSUs") and performance-based restricted stock units (“PRSUs”). We recognize the grant date fair value of all share-based awards over the requisite service period and account for forfeitures as they occur.
A summary of significant accounting policies is included in Part II, Item 8, Note 1, “Organization and Summary of Significant Accounting Policies” in our notes to the consolidated financial statements in this Annual Report. Management believes the following are the most critical accounting policies and reflect the significant estimates and assumptions used in the preparation of the consolidated financial statements.
A summary of significant accounting policies is included in Note 1, “Organization and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in this Annual Report. Management believes the following are the most critical accounting policies and reflect the significant estimates and assumptions used in the preparation of the consolidated financial statements.
Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows. These estimates and judgements have not fluctuated significantly for the fiscal year ended June 30, 2023 compared to prior fiscal years.
Should any of these estimates and assumptions change or prove to have been incorrect, it could have a material impact on our results of operations, financial position and statement of cash flows. These estimates have not fluctuated significantly for fiscal year 2024 compared to prior fiscal years.
As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth.
We will also continue to evaluate new business opportunities and new markets. As a result, our future growth within the existing business or new opportunities and markets may dictate the need for additional facilities and capital expenditures to support that growth.
Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as CPU/GPU, memory and storage.
Additionally, in order to remain competitive throughout all industry cycles, we actively change our selling price per unit in response to changes in costs for key components such as CPUs, GPUs, SSDs and memory.
In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or when loss or credit carryforwards are utilized.
These differences result in deferred tax assets, which are included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of income become deductible expenses under applicable income tax laws, or when loss or credit carryforwards are utilized.
Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Part II, Item 8, Note 1, “Organization and Summary of Significant Accounting Policies” to the consolidated financial statements in this Annual Report. SMCI | 2023 Form 10-K | 48
Recent Accounting Pronouncements For a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements, see Note 1, “Organization and Summary of Significant Accounting Policies” in the Notes to the Consolidated Financial Statements in this Annual Report. SMCI | 2024 Form 10-K | 61
Provision for income taxes and effective tax rates for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Income tax provision $ 110.7 $ 52.9 $ 6.9 $ 57.8 109.3 % $ 46.0 666.7 % Percentage of total net sales 1.6 % 1.0 % 0.2 % Effective tax rate 14.7 % 15.7 % 5.8 % Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year decrease in the effective tax rate is attributable to higher tax deductions from disqualified disposition of stock-based compensation, an increase in the R&D tax credit, and an increase in foreign-derived income.
Provision for income taxes and effective tax rates for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Income tax provision $ 63.3 $ 110.7 $ 52.9 $ (47.4) (42.8) % $ 57.8 109.3 % Percentage of total net sales 0.4 % 1.6 % 1.0 % Effective tax rate 5.2 % 14.7 % 15.7 % SMCI | 2024 Form 10-K | 57 Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year decrease in the effective tax rate is attributable to higher tax deductions from stock-based compensation, an increase in the R&D tax credit.
Fiscal Year 2022 Compared with Fiscal Year 2021 During fiscal year 2022 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers.
During fiscal year 2024 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers.
A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Part II, Item 8, Note 11, “Income Taxes” to the consolidated financial statements in this Annual Report.
A reconciliation of the federal statutory income tax rate to our effective tax rate is set forth in Note 12, “Income Taxes” in the Notes to the Consolidated Financial Statements in this Annual Report.
Inventories consist of purchased parts and raw materials (principally electronic components), work in process (principally products being assembled) and finished goods.
Inventories consist of raw materials (principally electronic components), work in process (principally products being assembled) and finished goods (principally finished products and products ready for sale).
We evaluate inventory on a quarterly basis for lower of cost or net realizable value and excess and obsolescence and, as necessary, write down the valuation of inventories based upon our inventory aging, forecasted usage and sales, anticipated selling price, product obsolescence and other factors.
We evaluate inventory on a quarterly basis for lower of cost or net realizable value and excess and obsolescence and, as necessary, write down the valuation of inventories based upon our inventory aging, forecasted sales, anticipated selling price, product obsolescence and other factors. Once inventory is written down, its new value is maintained until it is sold or scrapped.
Once inventory is written down, its new value is maintained until it is sold or scrapped. We receive various rebate incentives from certain suppliers based on our contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold.
We receive various rebate incentives from certain suppliers based on our contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold.
Because we generally do not have long-term fixed supply agreements, our cost of sales is subject to frequent change based on the availability of materials and other market conditions.
Because we generally do not have long-term fixed supply agreements, our cost of sales is subject to frequent change based on the availability of materials and other market conditions. We expect inventory levels to continue to increase to support the future growth of our business.
Cost of Sales and Gross Margin Cost of sales primarily consists of the costs to manufacture our products, including the costs of materials, contract manufacturing, shipping, personnel expenses, including salaries, benefits, stock-based compensation and incentive bonuses, equipment and facility expenses, warranty costs and inventory excess and obsolescence provisions.
Cost of Sales, Gross Profit and Gross Margin Cost of sales primarily consists of the costs to manufacture our products, which includes: the costs of components and materials, contract manufacturing, shipping, personnel expenses (salaries, benefits, stock-based compensation and incentive bonuses), equipment and facility expenses, warranty costs and inventory reserve charges.
The primary factors that impact our cost of sales are the mix of products sold and cost of materials, which include purchased parts and material costs, shipping costs, salary and benefits and overhead costs related to production as well as economies of scale gained from higher production volume in our facilities.
The primary factors that impact our cost of sales are the volume and mix of products sold, changes in the cost of components, changes in logistic costs, changes in salary and benefits and overhead costs related to production as well as economies of scale gained from higher production volume in our facilities.
The following table presents net sales by product type for fiscal years 2023, 2022 and 2021 (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Server and storage systems $ 6,569.8 $ 4,463.8 $ 2,790.3 $ 2,106.0 47.2 % $ 1,673.5 60.0 % Percentage of total net sales 92.2 % 85.9 % 78.4 % Subsystems and accessories 553.7 732.3 767.1 (178.6) (24.4) % (34.8) (4.5) % Percentage of total net sales 7.8 % 14.1 % 21.6 % Total net sales $ 7,123.5 $ 5,196.1 $ 3,557.4 $ 1,927.4 37.1 % $ 1,638.7 46.1 % Fiscal Year 2023 Compared with Fiscal Year 2022 During fiscal year 2023 we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers.
The following table presents net sales by product type for fiscal years 2024, 2023 and 2022 (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Server and storage systems $ 14,185.2 $ 6,569.8 $ 4,463.8 $ 7,615.4 115.9 % $ 2,106.0 47.2 % Percentage of total net sales 94.6 % 92.2 % 85.9 % Subsystems and accessories 804.0 553.7 732.3 250.3 45.2 % (178.6) (24.4) % Percentage of total net sales 5.4 % 7.8 % 14.1 % Total net sales $ 14,989.2 $ 7,123.5 $ 5,196.1 $ 7,865.7 110.4 % $ 1,927.4 37.1 % Fiscal Year 2024 Compared with Fiscal Year 2023 During fiscal year 2024 we experienced increased net sales from server and storage systems, particularly from our large enterprise and datacenter customers.
SMCI | 2023 Form 10-K | 43 General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, information technology, corporate governance and compliance, outside legal, audit, tax fees, insurance and bad debt reserves on accounts receivable.
General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, corporate governance and compliance, outside legal, audit, tax fees, insurance and credit losses on accounts receivable.
The year-over-year increase in sales and marketing expenses was primarily driven by a $23.8 million increase in compensation expenses due to salary increases, higher headcount and the cost of equity awards and a $4.6 million increase in travel and trade show expenses to drive new sales opportunities for our products and customer support, offset by a $3.5 million increase in marketing development funds received.
The year-over-year increase in sales and marketing expenses was driven by a $23.8 million increase in employee related costs primarily due to stock-based compensation increases, salary increases and higher headcount as we expanded our workforce and invested in key talent and a $4.6 million increase in travel and trade show expenses to drive new sales opportunities for our products and customer support, offset by a $3.5 million increase in marketing development funds received.
Fiscal Year 2022 Compared with Fiscal Year 2021 The period-over-period increase of $1.0 million in share of income from equity investee, net of taxes was primarily due to more net income recognized by the Corporate Venture.
Fiscal Year 2023 Compared with Fiscal Year 2022 The period-over-period decrease of $4.8 million in share of income from equity investee, net of taxes was primarily due to lower net income recognized by the Corporate Venture.
SMCI | 2023 Form 10-K | 46 Our key cash flow metrics were as follows (dollars in millions): Years Ended June 30, 2023 over 2022 2022 over 2021 2023 2022 2021 Net cash provided by (used in) operating activities $ 663.6 $ (440.8) $ 123.0 $ 1,104.4 $ (563.8) Net cash used in investing activities $ (39.5) $ (46.3) $ (58.0) $ 6.8 $ 11.7 Net cash (used in) provided by financing activities $ (448.3) $ 522.9 $ (44.4) $ (971.2) $ 567.3 Net increase in cash, cash equivalents and restricted cash $ 172.4 $ 35.1 $ 21.1 $ 137.3 $ 14.0 Operating Activities Net cash provided by operating activities increased by $1,104.4 million for fiscal year 2023 as compared to fiscal year 2022.
Our key cash flow metrics were as follows (dollars in millions): Years Ended June 30, 2024 over 2023 2023 over 2022 2024 2023 2022 Net cash (used in) provided by operating activities $ (2,486.0) $ 663.6 $ (440.8) $ (3,149.6) $ 1,104.4 Net cash used in investing activities $ (194.2) $ (39.5) $ (46.3) $ (154.7) $ 6.8 Net cash provided by (used in) financing activities $ 3,911.7 $ (448.3) $ 522.9 $ 4,360.0 $ (971.2) Effect of exchange rate fluctuations on cash $ (2.2) $ (3.4) $ (0.7) $ 1.2 $ (2.7) Net increase in cash, cash equivalents and restricted cash $ 1,229.3 $ 172.4 $ 35.1 $ 1,056.9 $ 137.3 SMCI | 2024 Form 10-K | 59 Operating Activities Net cash used in operating activities increased by $3,149.6 million for fiscal year 2024 as compared to fiscal year 2023.
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the same region where our products are sold.
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components.
Years Ended June 30, 2023 2022 2021 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 82.0 % 84.6 % 85.0 % Gross profit 18.0 % 15.4 % 15.0 % Operating expenses: Research and development 4.3 % 5.2 % 6.3 % Sales and marketing 1.6 % 1.7 % 2.4 % General and administrative 1.4 % 2.0 % 2.8 % Total operating expenses 7.3 % 8.9 % 11.5 % Income from operations 10.7 % 6.5 % 3.5 % Other income (expense), net 0.1 % 0.2 % (0.1) % Interest expense (0.1) % (0.1) % (0.1) % Income before income tax provision 10.7 % 6.6 % 3.3 % Income tax provision (1.6) % (1.0) % (0.2) % Share of (loss) income from equity investee, net of taxes (0.1) % — % — % Net income 9.0 % 5.6 % 3.1 % SMCI | 2023 Form 10-K | 40 Net Sales Net sales consist of sales of our server and storage solutions, including systems and related services and subsystems and accessories.
Years Ended June 30, 2024 2023 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 86.2 % 82.0 % 84.6 % Gross profit 13.8 % 18.0 % 15.4 % Operating expenses: Research and development 3.1 % 4.3 % 5.2 % Sales and marketing 1.3 % 1.6 % 1.7 % General and administrative 1.3 % 1.4 % 2.0 % Total operating expenses 5.7 % 7.3 % 8.9 % Income from operations 8.1 % 10.7 % 6.5 % Other income, net 0.1 % 0.1 % 0.2 % Interest expense (0.1) % (0.1) % (0.1) % Income before income tax provision 8.1 % 10.7 % 6.6 % Income tax provision (0.4) % (1.6) % (1.0) % Share of income (loss) from equity investee, net of taxes — % * (0.1) % — % * Net income 7.7 % 9.0 % 5.6 % * Represents an amount less than 0.1%.
SMCI | 2023 Form 10-K | 47 Capital Expenditure Requirements We anticipate our capital expenditures in fiscal year 2024 will be in range of $105.0 million to $115.0 million, relating primarily to costs associated with our manufacturing capabilities, including tooling for new products, new information technology investments, and facilities upgrades.
SMCI | 2024 Form 10-K | 60 Capital Expenditure Requirements We anticipate our capital expenditures for the fiscal year 2025 will be in range of $140.0 million to $150.0 million, relating primarily to costs associated with our global manufacturing capabilities, including tooling for new products, new information technology investments including a major upgrade of our ERP system and automating certain key internal controls, and facilities upgrades and expansion.
Fiscal Year 2022 Compared with Fiscal Year 2021 The change of $7.0 million in interest and other income (expense), net was primarily attributable to a $10.9 million increase in foreign exchange gain due to favorable currency fluctuations primarily related to our borrowing facilities in Taiwan offset by a $3.9 million increase in interest expense due to increase in loan balances and interest rates.
Fiscal Year 2023 Compared with Fiscal Year 2022 The change of $8.6 million in interest and other income (expense), net was primarily attributable to a $4.5 million decrease in foreign exchange gain due to unfavorable currency fluctuations primarily related to our borrowing facilities in Taiwan and a $4.1 million increase in interest expense due to an increase in interest rates on our outstanding loan balances.
Other Factors Affecting Liquidity and Capital Resources Refer to Part II, Item 8, Note 7, “Short-term and Long-term Debt” in our notes to consolidated financial statements in this Annual Report on Form 10-K for further information on our outstanding debt.
Other Factors Affecting Liquidity and Capital Resources Refer to Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements in this Annual Report for further information on our outstanding debt.
As part of determining the transaction price in contracts with customers, we may be required to estimate variable consideration when determining the amount of revenue to recognize. We estimate reserves for future sales returns based on a review of our history of actual returns.
As part of determining the transaction price in contracts with customers, we estimate reserves for future sales returns based on a review of our history of actual returns for each major product line.
The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on our historical experience. The expected volatility is based on the historical volatility of our common stock. The assumptions used to determine the fair value of the option awards represent management’s best estimates.
This model requires us to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of our common stock. The expected term represents the period that our stock-based awards are expected to be outstanding and was determined based on our historical experience.
We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in our consolidated balance sheets.
Income Taxes As part of the process of preparing our consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which we operate. We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accruals and allowances not currently deductible for tax purposes.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading "Risk Factors." Overview We are a Silicon Valley-based provider of accelerated compute platforms that are application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, AI, 5G and edge computing.
Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Annual Report, particularly under the heading "Risk Factors." Overview We are a Silicon Valley-based provider of Rack Scale Total Solutions built from our extensive portfolio of server and storage systems.
Interest and Other Income (Expense), Net Other income (expense), net consists primarily of interest earned on our investment and cash balances and foreign exchange gains and losses. Interest expense represents interest expense on our term loans and lines of credit.
Interest Expense and Other Income, Net Other income, net consists primarily of interest earned on our investment and cash deposits and foreign exchange gains and losses. SMCI | 2024 Form 10-K | 56 Interest expense represents interest expense on our term loans and lines of credit and amortization of the 2029 Convertible Notes issuance costs.
These changes are offset by an increase of $86.2 million in deferred income taxes primarily due to increase in capitalized research and development costs. Net cash provided by operating activities decreased by $563.8 million for fiscal year 2022 as compared to fiscal year 2021.
These changes are offset by an increase of $86.2 million in deferred income taxes primarily due to an increase in capitalized research and development costs.
Repatriations generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax. Where local restrictions prevent an efficient intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through operating cash flows, external borrowings, or both.
Where local restrictions prevent intercompany transfer of funds, our intent is to keep cash balances outside of the U.S. and to meet liquidity needs through operating cash flows, external borrowings, or both.
Cost of sales as a percentage of net sales may increase or decrease over time if the changes in average selling prices are not matched by corresponding changes in our costs. Our cost of sales as a percentage of net sales is also impacted by the extent to which we are able to efficiently utilize our expanding manufacturing capacity.
Cost of sales as a percentage of net sales may increase or decrease over time if the changes in our costs are not matched by corresponding changes in our ASPs.
SMCI | 2023 Form 10-K | 41 The following table presents percentages of net sales by geographic region for fiscal years 2023, 2022 and 2021 (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % United States $ 4,834.1 $ 3,035.5 $ 2,107.9 $ 1,798.6 59.3 % $ 927.6 44.0 % Percentage of total net sales 67.9 % 58.4 % 59.3 % Asia 1,050.8 1,139.9 699.7 (89.1) (7.8) % 440.2 62.9 % Percentage of total net sales 14.7 % 21.9 % 19.7 % Europe 1,003.1 825.2 614.8 177.9 21.6 % 210.4 34.2 % Percentage of total net sales 14.1 % 15.9 % 17.3 % Others 235.5 195.5 135.0 40.0 20.5 % 60.5 44.8 % Percentage of total net sales 3.3 % 3.7 % 3.7 % Total net sales $ 7,123.5 $ 5,196.1 $ 3,557.4 $ 1,927.4 37.1 % $ 1,638.7 46.1 % Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in overall net sales is the result of increased selling prices and units shipped of product sold especially to large enterprise and datacenter customers.
SMCI | 2024 Form 10-K | 53 The following table presents percentages of net sales by geographic region for fiscal years 2024, 2023 and 2022 (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % United States $ 10,187.2 $ 4,834.1 $ 3,035.5 $ 5,353.1 110.7 % $ 1,798.6 59.3 % Percentage of total net sales 68.0 % 67.9 % 58.4 % Asia 2,912.6 1,050.8 1,139.9 1,861.8 177.2 % (89.1) (7.8) % Percentage of total net sales 19.4 % 14.7 % 21.9 % Europe 1,294.0 1,003.1 825.2 290.9 29.0 % 177.9 21.6 % Percentage of total net sales 8.6 % 14.1 % 15.9 % Others 595.4 235.5 195.5 359.9 152.8 % 40.0 20.5 % Percentage of total net sales 4.0 % 3.3 % 3.7 % Total net sales $ 14,989.2 $ 7,123.5 $ 5,196.1 $ 7,865.7 110.4 % $ 1,927.4 37.1 % Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year increase in overall net sales is driven by an increase in demand from customers for GPU servers, HPC and rack-scale solutions which have higher ASPs, especially for large enterprise and data center customers from the United States.
SMCI | 2023 Form 10-K | 37 • Net income increased to $640.0 million in fiscal year 2023 as compared to $285.2 million in fiscal year 2022, which was primarily due to the higher net sales and lower operating expenses as a percentage of revenues in fiscal year 2023 as compared to fiscal year 2022. • Our cash and cash equivalents were $440.5 million and $267.4 million at the end of fiscal years 2023 and 2022, respectively.
SMCI | 2024 Form 10-K | 49 • Operating expenses increased by 63.0% in fiscal year 2024 as compared to fiscal year 2023, primarily due to higher headcount including salary increases and stock-based compensation. • Net income increased to $1,152.7 million in fiscal year 2024 as compared to $640.0 million in fiscal year 2023, which was primarily due to the higher net sales, partially offset by lower gross margin and higher operating expenses in fiscal year 2024 as compared to fiscal year 2023. • Our cash and cash equivalents were $1,669.8 million and $440.5 million at the end of fiscal years 2024 and 2023, respectively.
The year-over-year increase in sales and marketing expenses was primarily due to a $9.6 million increase in personnel expenses due to salary increases and a higher headcount, offset by a $5.7 million increase in marketing development funds received and a $0.5 million increase in advertising and other expenses.
The year-over-year increase in sales and marketing expenses was driven by a $64.8 million increase in employee related costs primarily due to stock-based compensation increases of $16.6 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $10.6 million increase in advertising and other expenses offset by a $0.7 million increase in marketing development funds received.
In this regard, we work closely with microprocessor and other key component vendors to take advantage of new technologies as they are introduced.
In this regard, we work closely with microprocessor and other key component vendors to take advantage of new technologies as they are introduced. Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new GPUs, microprocessors and storage technologies.
SMCI | 2023 Form 10-K | 45 Share of income (loss) from equity investee, net of taxes for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Share of income (loss) from equity investee, net of taxes $ (3.6) $ 1.2 $ 0.2 $ (4.8) (400.0) % $ 1.0 (500.0) % Percentage of total net sales — % — % — % Fiscal Year 2023 Compared with Fiscal Year 2022 The period-over-period decrease of $4.8 million in share of income from equity investee, net of taxes was primarily due to lower net income recognized by the Corporate Venture.
Share of income (loss) from equity investee, net of taxes for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Share of income (loss) from equity investee, net of taxes $ 1.8 $ (3.6) $ 1.2 $ 5.4 (150.0) % $ (4.8) (400.0) % Percentage of total net sales — % * (0.1) % — % * * Represents an amount less than 0.1%.
Our cash and cash equivalents were $440.5 million and $267.4 million as of June 30, 2023 and 2022, respectively. Our cash in foreign locations was $192.3 million and $169.5 million as of June 30, 2023 and 2022, respectively. Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs.
Our cash and cash equivalents in foreign locations was $337.3 million and $192.3 million as of June 30, 2024 and 2023, respectively. Amounts held outside of the U.S. are generally utilized to support non-U.S. liquidity needs. Repatriations generally will not be taxable from a U.S. federal tax perspective but may be subject to state income or foreign withholding tax.
For further details on our dealings with related parties, see Part II, Item 8, Note 9, “Related Party Transactions.” SMCI | 2023 Form 10-K | 42 Cost of sales and gross margin for fiscal years 2023, 2022 and 2021, are as follows (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Cost of sales $ 5,840.5 $ 4,396.1 $ 3,022.9 $ 1,444.4 32.9 % $ 1,373.2 45.4 % Gross profit 1,283.0 800.0 534.5 483.0 60.4 % 265.5 49.7 % Gross margin 18.0 % 15.4 % 15.0 % 2.6 % 0.4 % Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in cost of sales was primarily attributed to an increase of $1,379.6 million in costs of materials and contract manufacturing expenses primarily related to the increased shipments of our products and solutions, a $59.2 million increase in overhead costs which includes labor costs attributed to increase of operation activities, a $36.6 million increase in inventory reserves, and a $13.6 million increase in other cost of sales partially offset by a $44.6 million decrease in freight charges due to a reduced need to expedite shipments due to disruptions in the supply chain caused by the COVID-19 pandemic.
SMCI | 2024 Form 10-K | 54 Cost of sales and gross margin for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Cost of sales $ 12,927.8 $ 5,840.5 $ 4,396.1 $ 7,087.3 121.3 % $ 1,444.4 32.9 % Gross profit 2,061.4 1,283.0 800.0 778.4 60.7 % 483.0 60.4 % Gross margin 13.8 % 18.0 % 15.4 % (4.2) % 2.6 % Fiscal Year 2024 Compared with Fiscal Year 2023 The year-over-year increase in cost of sales was primarily attributed to an increase of $7,006.7 million in costs of components, materials and contract manufacturing expenses primarily related to the increase in shipments of GPU servers, HPC, and rack scale solutions which have higher costs, a $52.3 million increase in inventory write-down adjustments, a $19.6 million increase in overhead costs which includes labor costs attributed to increase of operation activities and a $8.7 million increase in freight charges.
Contractual Obligations Our estimated future obligations as of June 30, 2023, include both current and long term obligations. For our long-term debt as noted in Part II, Item 8, Note 7, “Short-term and Long-term Debt”, we have a current obligation of $170.1 million and a long-term obligation of $120.2 million.
Contractual Obligations Our estimated future obligations as of June 30, 2024, include both current and long-term obligations. For our long-term debt as noted in Note 7, “Lines of Credit and Term Loans” in the Notes to the Consolidated Financial Statements, we have a current obligation of $402.3 million and a long-term obligation of $74.1 million.
The main factors that impact net sales of our server and storage systems are the number of compute nodes sold and the average selling prices per node. The main factors that impact net sales of our subsystems and accessories are units shipped and the average selling price per unit.
The main factors that impact net sales of our subsystems and accessories are units shipped and the average selling price per unit. The prices for our server and storage systems range widely depending upon the configuration, including the speed, functionality and performance of key components such as CPUs, GPUs, SSDs and memory.
SMCI | 2023 Form 10-K | 44 Interest and other income (expense), net for fiscal years 2023, 2022 and 2021 are as follows (dollars in millions): Years Ended June 30, 2023 over 2022 Change 2022 over 2021 Change 2023 2022 2021 $ % $ % Other income (expense), net $ 3.6 $ 8.1 $ (2.8) $ (4.5) (55.6) % $ 10.9 (389.3) % Interest expense (10.5) (6.4) (2.5) (4.1) 64.1 % (3.9) 156.0 % Interest and other income (expense), net $ (6.9) $ 1.7 $ (5.3) $ (8.6) (505.9) % $ 7.0 (132.1) % Fiscal Year 2023 Compared with Fiscal Year 2022 The change of $8.6 million in interest and other income (expense), net was primarily attributable to a $4.5 million decrease in foreign exchange gain due to unfavorable currency fluctuations primarily related to our borrowing facilities in Taiwan and a $4.1 million increase in interest expense due to increase in interest rates on our outstanding loan balances.
Interest expense and other income, net for fiscal years 2024, 2023 and 2022 are as follows (dollars in millions): Years Ended June 30, 2024 over 2023 Change 2023 over 2022 Change 2024 2023 2022 $ % $ % Other income, net $ 22.7 $ 3.6 $ 8.1 $ 19.1 530.6 % $ (4.5) (55.6) % Interest expense (19.4) (10.5) (6.4) (8.9) 84.8 % (4.1) 64.1 % Interest expense and other income (expense), net $ 3.3 $ (6.9) $ 1.7 $ 10.2 (147.8) % $ (8.6) (505.9) % Fiscal Year 2024 Compared with Fiscal Year 2023 The increase in Other income, net of $19.1 million was driven by an increase of $26.1 million in interest income due to higher balances held in interest-bearing deposit accounts during the year, and an increase in foreign currency exchange gain of $6.1 million due to a strong US dollar, offset by a $13.1 million investment and impairment loss in equity securities.
These estimates involve inherent uncertainties and the application of management’s judgment. Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
The expected volatility is based on the historical volatility of our common stock. The assumptions used to determine the fair value of the option awards represent management’s best estimates. These estimates involve inherent uncertainties and the application of management’s judgment. Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions.
Financial Highlights The following is a summary of financial highlights of fiscal years 2023 and 2022: • Net sales increased by 37.1% in fiscal year 2023 as compared to fiscal year 2022. • Gross margin increased to 18.0% in fiscal year 2023 from 15.4% in fiscal year 2022, primarily due to product and customer mix and decreased logistic costs. • Operating expenses increased by 12.3% in fiscal year 2023 as compared to fiscal year 2022, primarily due to the increase in personnel expenses as a result of salary increases, equity grants and a higher headcount.
Financial Highlights The following is a summary of financial highlights of fiscal years 2024 and 2023: • Net sales increased by 110.4% in fiscal year 2024 as compared to fiscal year 2023. • Gross margin declined to 13.8% in fiscal year 2024 from 18.0% in fiscal year 2023, primarily due to our strategy to offer competitive pricing to gain market share, change in product and customer mix, and higher manufacturing related expenses.
Historically, our ability to introduce new products rapidly has allowed us to benefit from technology transitions such as the introduction of new microprocessors and storage technologies, and as a result, we monitor the product introduction cycles of Intel Corporation, NVIDIA Corporation, Advanced Micro Devices, Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others closely and carefully.
As a result, we monitor the product introduction cycles of NVIDIA Corporation, Intel Corporation, Advanced Micro Devices, Inc., Broadcom Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others closely and carefully. This also impacts our research and development expenditures as we continue to invest more in our current and future product development efforts.
The year-over-year decrease in Asia is mainly due to economic slowdown in China and Japan during fiscal year 2023 which heavily reduced the sales activities in that region. Fiscal Year 2022 Compared with Fiscal Year 2021 The year-over-year increase in overall net sales is the result of increased selling prices and quantities of product shipments.
This is due to increased demand from datacenter customers in the United States for GPU, HPC, and rack-scale solutions. The year-over-year decrease in Asia is mainly due to economic slowdown in China and Japan during fiscal year 2023 which heavily reduced the sales activities in that region.
We work with Ablecom, one of our key contract manufacturers and also a related party, to optimize modular designs for our chassis and certain other components. We also outsource to Compuware, also a related party, a portion of our design activities and a significant part of the manufacturing of components, particularly power supplies.
We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights.
Any provision is recorded as a reduction of revenue at the time of sale based on an evaluation of the contract terms and historical experience. SMCI | 2023 Form 10-K | 38 We allocate the transaction price for each customer contract to each performance obligation based on the relative SSP for each performance obligation within each contract.
SMCI | 2024 Form 10-K | 50 We allocate the transaction price of each customer contract to each performance obligation based on the relative standalone selling price ("SSP") for each performance obligation within each contract.
For fiscal years 2023, 2022 and 2021, our net income was $640.0 million, $285.2 million and $111.9 million, respectively. In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products.
In order to increase our sales and profits, we believe that we must continue to develop flexible and application optimized server and storage solutions and be among the first to market with new features and products and deliver Total IT Solutions that combine server, storage, networking and software that is integrated, validated and delivered at the rack and cluster (multi-rack) level.
We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due. See Part II, Item 8, Note 11, “Income Taxes” to the consolidated financial statements in this Annual Report for a discussion of income taxes.
As noted in Note 13, "Commitments and Contingencies" in the Notes to the Consolidated Financial Statements, we have current obligations related to non-cancelable purchase commitments of $6.2 billion. We have not provided a detailed estimate of the payment timing of unrecognized tax benefits due to the uncertainty of when the related tax settlements will become due.
Our purchases of products from Ablecom and Compuware combined represented 6.6%, 8.3% and 7.8% of our cost of sales for fiscal years 2023, 2022 and 2021, respectively.
Our purchases of products from Ablecom and Compuware combined represented 4.3%, 6.6% and 8.3% of our cost of sales for fiscal years 2024, 2023 and 2022, respectively. For further details on our dealings with related parties, see Note 10, “Related Party Transactions” in the Notes to the Consolidated Financial Statements.
Results of Operations The following table presents certain items of our consolidated statements of operations expressed as a percentage of revenue.
If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future. Results of Operations The following table presents certain items of our consolidated statements of operations expressed as a percentage of net sales.
Under our operating leases as noted in Part II, Item 8, Note 8, "Leases", we have a current obligation of $7.8 million and a long-term obligation of $12.2 million. As noted in Part II, Item 8, Note 12, "Commitments and Contingencies", we have current obligations related to noncancelable purchase commitments of $2.3 billion.
Additionally, as noted in Note 8, “Convertible Notes” in the Notes to the Consolidated Financial Statements, we have a convertible debt obligation of $1,725.0 million. Under our operating leases as noted in Note 9, "Leases", in the Notes to the Consolidated Financial Statements we have a current obligation of $9.3 million and a long-term obligation of $26.1 million.
Fiscal Year 2022 Compared with Fiscal Year 2021 The year-over-year increase in research and development expenses was primarily due to a $40.8 million increase in personnel expenses due to salary increases and a higher headcount, $3.7 million lower research and development credits from certain suppliers and customers towards our development efforts and a $3.4 million increase in product development costs.
The year-over-year increase in research and development expenses was driven by a $140.4 million increase in employee related costs primarily due to stock-based compensation increases of $84.2 million, salary increases and higher headcount as we expanded our workforce and invested in key talent, a $17.1 million increase in product development costs to support next generation products and technologies, offset by a $1.3 million increase in research and development credits received from certain suppliers and customers.
We estimate the fair value of stock options granted using a Black-Scholes option pricing model. This model requires us to make estimates and assumptions with respect to the expected term of the option and the expected volatility of the price of our common stock.
The fair value of stock options with a market condition is estimated, at the date of grant, using the Monte Carlo Simulation model. We estimate the fair value of stock options granted using a Black-Scholes option pricing model.
Fiscal Year 2022 Compared with Fiscal Year 2021 The year-over-year increase in cost of sales was primarily attributed to an increase of $1,262.6 million in costs of materials and contract manufacturing expenses primarily related to the increase in net sales volume, a $54.9 million increase in freight charges, a $23.6 million increase in overhead costs, a $18.9 million increase due to lower cost recovery of cost paid in prior periods, a $8.3 million increase in excess and obsolete inventory charges and a $4.9 million increase in other cost of sales.
Fiscal Year 2023 Compared with Fiscal Year 2022 The year-over-year increase in cost of sales was primarily attributed to an increase of $1,379.6 million in costs of components, materials and contract manufacturing expenses primarily related to the increased shipments of our products, a $59.2 million increase in overhead costs which includes labor costs attributed to increase of operation activities, a $36.6 million increase in inventory reserves, and a $13.6 million increase in other cost of sales partially offset by a $44.6 million decrease in freight charges due to a reduced need to expedite shipments caused by disruptions in the supply chain caused by the COVID-19 pandemic.
The decrease was primarily due to an increase in net cash required for net working capital of $739.6 million to meet customer demand, support expected business growth and mitigate supply chain risk as a result of the COVID-19 pandemic environment and a $16.2 million decrease in unrealized gain and loss.
The increase was primarily due to an increase in working capital required for customer demand and business growth.
We continue to evaluate financing options that may be required to support the growth of our business, if it occurs more rapidly than anticipated.
On November 20, 2024, we prepaid in full and terminated the 2018 Bank of America Credit Facility, the Cathay Bank Credit Agreement and the Bridge Term Loan Facility. We continue to evaluate financing options that may be required to support the growth of our business.
These factors encompass labor shortages, disruptions in the supply chain, inflation, higher interest rates, and fluctuations in capital markets. The global business landscape encountered widespread disruption as a consequence of the COVID-19 pandemic, which commenced in early 2020.
Macroeconomic Factors Our business and financial outlook have experienced, and may continue to face, challenges due to adverse macroeconomic conditions and uncertainties. These factors encompass labor shortages, disruptions in the supply chain, inflation, higher interest rates, and fluctuations in capital markets.
The year-over-year decrease in net sales of subsystems and accessories was primarily due to our emphasis on selling full systems and servers. Our services and software revenue, included in server and storage systems revenue, increased by $2.5 million year-over-year.
The percentage of our net sales represented by sales of server and storage systems increased to 94.6% in fiscal year 2024 compared to 92.2% in fiscal year 2023 and 85.9% in fiscal year 2022, and the percentage of our net sales represented by sales of subsystems and accessories was 5.4% in fiscal year 2024, 7.8% in fiscal year 2023 and 14.1% in fiscal year 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeRealized and unrealized foreign exchange gain (loss) for fiscal years 2023, 2022 and 2021 was $0.2 million, $7.7 million and $(3.2) million, respectively. SMCI | 2023 Form 10-K | 49
Biggest changeSuch fluctuations have not been significant historically, and a 10% change in foreign currency exchange rates would not have a significant impact on the results of operations. Realized and unrealized foreign exchange gain for fiscal years 2024, 2023 and 2022 was $6.3 million, $0.2 million and $7.7 million, respectively. SMCI | 2024 Form 10-K | 62
As of June 30, 2023, our investments were in money market funds, certificates of deposits and auction rate securities. We are exposed to changes in interest rates as a result of our borrowings under our term loan and revolving lines of credit.
As of June 30, 2024, our investments were in money market funds, certificates of deposits and auction rate securities. We are exposed to changes in interest rates as a result of our borrowings under our term loan and revolving lines of credit.
However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars. Such fluctuations have not been significant historically.
However, certain loans and transactions in these entities are denominated in a currency other than the U.S. dollar, and thus we are subject to foreign currency exchange rate fluctuations associated with re-measurement to U.S. dollars.
The interest rates for the term loans and the revolving lines of credit ranged from 1.20% to 7.08% at June 30, 2023. Based on the outstanding principal indebtedness of $290.3 million under our credit facilities as of June 30, 2023, we believe that a 10% change in interest rates would not have a significant impact on our results of operations.
The interest rates for the term loans and the revolving lines of credit ranged from 1.33% to 7.33% at June 30, 2024. Based on the outstanding principal indebtedness of $476.4 million under our credit facilities as of June 30, 2024, we believe that a 10% change in interest rates would not have a significant impact on the results of operations.

Other SMCI 10-K year-over-year comparisons