Super Micro Computer Inc. (SMCI, Financial) filed Quarterly Report for the period ended 2010-12-31.
Super Micro Computer Inc. has a market cap of $553.4 million; its shares were traded at around $15.54 with a P/E ratio of 17.8 and P/S ratio of 0.8. Hedge Fund Gurus that owns SMCI: Steven Cohen of SAC Capital Advisors, Paul Tudor Jones of The Tudor Group. Mutual Fund and Other Gurus that owns SMCI: RS Investment Management, RS Investment Management, Chuck Royce of Royce& Associates, Chuck Royce of Royce& Associates.
We perform the majority of our research and development efforts in-house. Research and development expenses represented approximately 5.1% of our net sales for the three and six months ended December 31, 2010 and 4.9% and 5.3% of our net sales for three and six months ended December 31, 2009, respectively.
Ablecom, a related party, which supplies us with contract design and manufacturing support. For the three and six months ended December 31, 2010, our purchases from Ablecom represented approximately 23.1% and 22.1% of our cost of sales, respectively, compared to approximately 26.5% and 24.5% of our cost of sales for the three and six months ended December 31, 2009, respectively. The decrease in percentage of cost of sales in the three and six months ended December 31, 2010 was primarily related to server systems sales composing a higher percentage of our net sales and a change in product mix which resulted in a higher percentage of server subsystems and accessories being purchased from other suppliers. Ablecoms sales to us constitute a substantial majority of Ablecoms net sales. We continue to maintain our manufacturing relationship with Ablecom in Asia in an effort to reduce our product costs and do not have any current plans to reduce our reliance on Ablecom product purchases. In addition to providing a larger volume of contract manufacturing services for us, Ablecom continues to warehouse for us a number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the U.S. and Europe. We typically negotiate the price of products that we purchase from Ablecom on a quarterly basis; however, either party may re-negotiate the price of products with each order. As a result of our relationship with Ablecom, it is possible that Ablecom may in the future sell products to us at a price higher or lower than we could obtain from an unrelated third party supplier. This may result in our future reporting of gross profit as a percentage of net sales that is less than or in excess of what we might have obtained absent our relationship with Ablecom.
Impairment of short-term and long-term investments. Impairment of short-term and long-term investments relates to the unrealized loss on the carrying value of our investments in auction rate securities; such securities were rated AAA at the date of purchase. The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets and exposure of these securities to the financial condition of bond insurance companies. We have received all interest payments due on these instruments on a timely basis. Each of these securities has been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates and the auctions have subsequently failed. When these securities lost the short-term liquidity previously provided by the auction processes, we reclassified these securities as long-term investments. For the securities with the stated maturity less than a year, the securities were classified as short-term available-for-sale investments. We have used a discounted cash flow model to estimate the fair value of these investments as of December 31, 2010 and June 30, 2010. The material factors used in preparing the discounted cash flow model are 1) the discount rate utilized to present value the cash flows, 2) the time period until redemption and 3) the estimated rate of return. Management derives the estimates by obtaining input from market data on the applicable discount rate, estimated time to maturity and estimated rate of return. The changes in fair value have been primarily due to changes in the estimated rate of return and a change in the estimated period to liquidity. The fair value of our investment portfolio may change between 2% to 3% by increasing or decreasing the rate of return used by 1% or by increasing or decreasing the term used by 1 year. Changes in these estimates or in the market conditions for these investments are likely in the future based upon the then current market conditions for these investments and may affect the fair value of these investments. The accumulated unrealized loss as of December 31, 2010 and June 30, 2010 was $0.2 million, net of deferred income taxes, on the securities, respectively. We deem this loss to be temporary as we determined that we will not likely be required to sell the securities before their anticipated recovery and we have the intent and ability to hold our investments until recovery of cost.
For the three months ended December 31, 2010, the approximate number of server system units sold increased 27.1% to 61,000 compared to 48,000 for the three months ended December 31, 2009. The average selling price of server system units increased 14.3% to approximately $1,600 in the three months ended December 31, 2010 compared to approximately $1,400 in the three months ended December 31, 2009. The average selling prices of our server systems increased principally due to an increase in our sales of complete integrated, high-end server solutions to OEM and end customers and higher average selling prices of 6000 and 7000 Series configuration of servers which incorporated additional features such as higher density, memory and hard disk drive capacity. Sales of server systems increased by $32.0 million or 48.9% from the three months ended December 31, 2009 to the three months ended December 31, 2010, primarily due to higher sales to OEM and end customers and higher sales of 5000, 6000 and 7000 Series configuration of servers including 2U Twin, 2U Twin², Blade and GPU solutions. Sales of server systems represented 40.5% of our net sales for the three months ended December 31, 2010 as compared to 36.0% of our net sales for the three months ended December 31, 2009.
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Super Micro Computer Inc. has a market cap of $553.4 million; its shares were traded at around $15.54 with a P/E ratio of 17.8 and P/S ratio of 0.8. Hedge Fund Gurus that owns SMCI: Steven Cohen of SAC Capital Advisors, Paul Tudor Jones of The Tudor Group. Mutual Fund and Other Gurus that owns SMCI: RS Investment Management, RS Investment Management, Chuck Royce of Royce& Associates, Chuck Royce of Royce& Associates.
Highlight of Business Operations:
We sell our server systems and subsystems and accessories primarily through distributors and to a lesser extent to OEMs as well as through our direct sales force. We derived approximately 53.7% and 56.7% of our net sales from products sold to distributors, and 46.3% and 43.3% from sales to OEMs and to end customers for the three and six months ended December 31, 2010, respectively, and 68.5% and 68.3% of our net sales from products sold to distributors, and 31.5% and 31.7% from sales to OEMs and to end customers for the three and six months ended December 31, 2009, respectively. None of our customers accounted for 10% or more of our net sales in the three or six months ended December 31, 2010 and 2009. We derived approximately 57.3% and 58.0% of our net sales from customers in the United States for the three and six months ended December 31, 2010, respectively, and 57.6% and 60.1% of our net sales from customers in the United States for the three and six months ended December 31, 2009, respectively. We derived approximately 42.7% and 42.0% of our net sales from customers outside the United States for the three and six months ended December 31, 2010, respectively, and approximately 42.4% and 39.9% of our net sales from customers outside the United States for the three and six months ended December 31, 2009, respectively.We perform the majority of our research and development efforts in-house. Research and development expenses represented approximately 5.1% of our net sales for the three and six months ended December 31, 2010 and 4.9% and 5.3% of our net sales for three and six months ended December 31, 2009, respectively.
Ablecom, a related party, which supplies us with contract design and manufacturing support. For the three and six months ended December 31, 2010, our purchases from Ablecom represented approximately 23.1% and 22.1% of our cost of sales, respectively, compared to approximately 26.5% and 24.5% of our cost of sales for the three and six months ended December 31, 2009, respectively. The decrease in percentage of cost of sales in the three and six months ended December 31, 2010 was primarily related to server systems sales composing a higher percentage of our net sales and a change in product mix which resulted in a higher percentage of server subsystems and accessories being purchased from other suppliers. Ablecoms sales to us constitute a substantial majority of Ablecoms net sales. We continue to maintain our manufacturing relationship with Ablecom in Asia in an effort to reduce our product costs and do not have any current plans to reduce our reliance on Ablecom product purchases. In addition to providing a larger volume of contract manufacturing services for us, Ablecom continues to warehouse for us a number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the U.S. and Europe. We typically negotiate the price of products that we purchase from Ablecom on a quarterly basis; however, either party may re-negotiate the price of products with each order. As a result of our relationship with Ablecom, it is possible that Ablecom may in the future sell products to us at a price higher or lower than we could obtain from an unrelated third party supplier. This may result in our future reporting of gross profit as a percentage of net sales that is less than or in excess of what we might have obtained absent our relationship with Ablecom.
Impairment of short-term and long-term investments. Impairment of short-term and long-term investments relates to the unrealized loss on the carrying value of our investments in auction rate securities; such securities were rated AAA at the date of purchase. The liquidity and fair value of these securities has been negatively impacted by the uncertainty in the credit markets and exposure of these securities to the financial condition of bond insurance companies. We have received all interest payments due on these instruments on a timely basis. Each of these securities has been subject to auction processes for which there had been insufficient bidders on the scheduled rollover dates and the auctions have subsequently failed. When these securities lost the short-term liquidity previously provided by the auction processes, we reclassified these securities as long-term investments. For the securities with the stated maturity less than a year, the securities were classified as short-term available-for-sale investments. We have used a discounted cash flow model to estimate the fair value of these investments as of December 31, 2010 and June 30, 2010. The material factors used in preparing the discounted cash flow model are 1) the discount rate utilized to present value the cash flows, 2) the time period until redemption and 3) the estimated rate of return. Management derives the estimates by obtaining input from market data on the applicable discount rate, estimated time to maturity and estimated rate of return. The changes in fair value have been primarily due to changes in the estimated rate of return and a change in the estimated period to liquidity. The fair value of our investment portfolio may change between 2% to 3% by increasing or decreasing the rate of return used by 1% or by increasing or decreasing the term used by 1 year. Changes in these estimates or in the market conditions for these investments are likely in the future based upon the then current market conditions for these investments and may affect the fair value of these investments. The accumulated unrealized loss as of December 31, 2010 and June 30, 2010 was $0.2 million, net of deferred income taxes, on the securities, respectively. We deem this loss to be temporary as we determined that we will not likely be required to sell the securities before their anticipated recovery and we have the intent and ability to hold our investments until recovery of cost.
For the three months ended December 31, 2010, the approximate number of server system units sold increased 27.1% to 61,000 compared to 48,000 for the three months ended December 31, 2009. The average selling price of server system units increased 14.3% to approximately $1,600 in the three months ended December 31, 2010 compared to approximately $1,400 in the three months ended December 31, 2009. The average selling prices of our server systems increased principally due to an increase in our sales of complete integrated, high-end server solutions to OEM and end customers and higher average selling prices of 6000 and 7000 Series configuration of servers which incorporated additional features such as higher density, memory and hard disk drive capacity. Sales of server systems increased by $32.0 million or 48.9% from the three months ended December 31, 2009 to the three months ended December 31, 2010, primarily due to higher sales to OEM and end customers and higher sales of 5000, 6000 and 7000 Series configuration of servers including 2U Twin, 2U Twin², Blade and GPU solutions. Sales of server systems represented 40.5% of our net sales for the three months ended December 31, 2010 as compared to 36.0% of our net sales for the three months ended December 31, 2009.
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