Super Micro Computer Inc. (SMCI, Financial) filed Quarterly Report for the period ended 2009-12-31.
Super Micro Computer Inc. has a market cap of $435.4 million; its shares were traded at around $12.35 with a P/E ratio of 30.88 and P/S ratio of 0.86. SMCI is in the portfolios of Chuck Royce of ROYCE & ASSOCIATES.
We perform the majority of our research and development efforts in-house. Research and development expenses represented approximately 4.5% and 5.1% of our net sales for the three and six months ended December 31, 2009, respectively, compared to approximately 7.0% and 6.2% of out net sales for the three and six months ended December 31, 2008, respectively.
One of our key suppliers is Ablecom, a related party, which supplies us with contract design and manufacturing support. For the three and six months ended December 31, 2009, our purchases from Ablecom represented approximately 26.5% and 24.5% of our cost of sales, respectively, compared to approximately 22.8% and 25.2% of our cost of sales for the three and six months ended December 31, 2008. respectively. The increase in percentage of cost of sales in the three months ended December 31, 2009 was primarily related to a higher volume of chassis purchases from Ablecom in the three months ended December 31, 2009 in order to support our growth. The decrease in percentage of cost of sales in the six months ended December 31, 2009 was primarily related to higher product mix of subsystems and accessories which were purchased from other suppliers in the six months ended December 31, 2009. 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 security with the stated maturity less than a year, the security was classified as a short-term available-for-sale investment. We have used a discounted cash flow model to estimate the fair value of these investments as of December 31, 2009 and June 30, 2009. 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 4% 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. As of December 31, 2009 and June 30, 2009 we have recorded an accumulated unrealized loss of $385,000 and $801,000, 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 to hold our investments until recovery of cost.
Net sales. Net sales increased by $53.4 million, or 41.5%, to $182.0 million from $128.6 million, for the three months ended December 31, 2009 and 2008, respectively. This increase was due primarily to an increase in unit volumes and average selling prices of server systems and subsystems and accessories. For the three months ended December 31, 2009, the approximate number of server system units sold increased 20.0% to 48,000 compared to 40,000 for the three months ended December 31, 2008. The average selling price of server system units increased 7.7% to approximately $1,400 in the three months ended December 31, 2009 compared to approximately $1,300 in the three months ended December 31, 2008. The average selling prices of our server systems increased principally due to higher average selling prices of 6000 Series configuration of servers which incorporated additional features. Sales of server systems increased by $12.7 million or 24.2% from the three months ended December 31, 2008 to the three months ended December 31, 2009, primarily due to higher sales of 6000 Series configuration of servers. Sales of server systems represented 36.0% of our net sales for the three months ended December 31, 2009 as compared to 41.0% of our net sales for the three months ended December 31, 2008. For the three months ended December 31, 2009, the approximate number of subsystems and accessories units sold increased 26.7% to 803,000 compared to 634,000 for the three months ended December 31, 2008. Sales of subsystems and accessories units increased by $40.7 million or 53.6% from the three months ended December 31, 2008 to the three months ended December 31, 2009, primarily due to higher sales to distributors and resellers. Sales of subsystems and accessories represented
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Super Micro Computer Inc. has a market cap of $435.4 million; its shares were traded at around $12.35 with a P/E ratio of 30.88 and P/S ratio of 0.86. SMCI is in the portfolios of 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 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. We derived approximately 66.5% and 64.4% of our net sales from products sold to distributors, and 33.5% and 35.6% from sales to OEMs and to end customers for the three and six months ended December 31, 2008, respectively. None of our customers accounted for 10% or more of our net sales in the three and six months ended December 31, 2009 and 2008. We derived approximately 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, and approximately 65.1% and 65.7% of our net sales from customers in the United States for the three and six months ended December 31, 2008, respectively. We derived 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 and approximately 34.9% and 34.3% of our net sales from customers outside the United States for the three and six months ended December 31, 2008.We perform the majority of our research and development efforts in-house. Research and development expenses represented approximately 4.5% and 5.1% of our net sales for the three and six months ended December 31, 2009, respectively, compared to approximately 7.0% and 6.2% of out net sales for the three and six months ended December 31, 2008, respectively.
One of our key suppliers is Ablecom, a related party, which supplies us with contract design and manufacturing support. For the three and six months ended December 31, 2009, our purchases from Ablecom represented approximately 26.5% and 24.5% of our cost of sales, respectively, compared to approximately 22.8% and 25.2% of our cost of sales for the three and six months ended December 31, 2008. respectively. The increase in percentage of cost of sales in the three months ended December 31, 2009 was primarily related to a higher volume of chassis purchases from Ablecom in the three months ended December 31, 2009 in order to support our growth. The decrease in percentage of cost of sales in the six months ended December 31, 2009 was primarily related to higher product mix of subsystems and accessories which were purchased from other suppliers in the six months ended December 31, 2009. 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 security with the stated maturity less than a year, the security was classified as a short-term available-for-sale investment. We have used a discounted cash flow model to estimate the fair value of these investments as of December 31, 2009 and June 30, 2009. 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 4% 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. As of December 31, 2009 and June 30, 2009 we have recorded an accumulated unrealized loss of $385,000 and $801,000, 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 to hold our investments until recovery of cost.
Net sales. Net sales increased by $53.4 million, or 41.5%, to $182.0 million from $128.6 million, for the three months ended December 31, 2009 and 2008, respectively. This increase was due primarily to an increase in unit volumes and average selling prices of server systems and subsystems and accessories. For the three months ended December 31, 2009, the approximate number of server system units sold increased 20.0% to 48,000 compared to 40,000 for the three months ended December 31, 2008. The average selling price of server system units increased 7.7% to approximately $1,400 in the three months ended December 31, 2009 compared to approximately $1,300 in the three months ended December 31, 2008. The average selling prices of our server systems increased principally due to higher average selling prices of 6000 Series configuration of servers which incorporated additional features. Sales of server systems increased by $12.7 million or 24.2% from the three months ended December 31, 2008 to the three months ended December 31, 2009, primarily due to higher sales of 6000 Series configuration of servers. Sales of server systems represented 36.0% of our net sales for the three months ended December 31, 2009 as compared to 41.0% of our net sales for the three months ended December 31, 2008. For the three months ended December 31, 2009, the approximate number of subsystems and accessories units sold increased 26.7% to 803,000 compared to 634,000 for the three months ended December 31, 2008. Sales of subsystems and accessories units increased by $40.7 million or 53.6% from the three months ended December 31, 2008 to the three months ended December 31, 2009, primarily due to higher sales to distributors and resellers. Sales of subsystems and accessories represented
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