01—Abstract
Summary
Summary of the 10-K filed September 7, 2010. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. filed its annual report on Form 10-K for fiscal year ended June 30, 2010.
The company describes itself as a global leader in server technology and green computing innovation, selling rackmount, blade, workstation, storage and GPU server systems plus subsystems and accessories, mainly through distributors. Net sales rose to $721.4 milliona in fiscal 2010 from $505.6 million in fiscal 2009, and net income increased to $26.9 million from $16.1 million. Subsystems and accessories generated $476.2 million of net sales versus $245.2 million from optimized server systems, and gross margin declined to 15.9% from 17.5% as the company grew market share during the economic recovery.
Cash flow from operations was negative at ($2.2b) million in fiscal 2010, compared with $21.8 million in fiscal 2009, as inventory rose to $135.6 million from $90.0 million and accounts receivable increased. The company bought three San Jose buildings in June 2010 using $18.6 million drawn on a $25.0 million revolving line of credit, which it must replace with a mortgage loan by December 2010. Related-party dealings with Ablecom Technology, a contract manufacturer partly owned by the CEO's family, accounted for 20.5% of cost of sales in fiscal 2010, and the auditor noted the significance of these related-party transactions.
The filing also reports a Digitechnic litigation loss provision of $1.1 millionc, which was settled and paid in December 2009, and $6.7 million of auction rate securities still held. Management concluded internal control over financial reporting was effective as of June 30, 2010.
02—Key points
Key Highlights
- Net sales grew 42.7% to $721.4 million in fiscal 2010, up from $505.6 million in fiscal 2009.
- Net income rose to $26.9 million in fiscal 2010 from $16.1 million, and diluted EPS was $0.65 versus $0.41.
- Gross margin fell to 15.9% of net sales from 17.5%, as the company grew market share during the economic recovery.
- Operating cash flow was negative at ($2.2) million, down from $21.8 million, driven by a $48.2 million inventory build and a $33.3 million increase in accounts receivable.
- Subsystems and accessories sales were $476.2 million (66.0% of net sales), while server systems sales were $245.2 million (34.0%).
- A $25.0 million revolving line of credit was drawn for $18.6 million to buy three San Jose buildings, with a mortgage required to repay it by December 2010.
- Ablecom, a related-party contract manufacturer, represented 20.5% of cost of sales, and the auditor flagged the related-party relationship.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Super Micro Computer kept $0.04.
- Revenue$721.4M100.0%
- Cost of revenue−$606.4M84.1%
- Gross profit$115.0M15.9%
- Operating costs−$74.2M10.3%
- Operating income$40.7M5.6%
- Interest, other & tax−$13.8M1.9%
- Net income$26.9M3.7%
Where FY2010 revenue went
$721.4M- Cost of revenue: $606.4M, 84% of revenue
- Net income: $26.9M, 3.7% of revenue
- R&D: $37.4M, 5.2% of revenue
- Other operating costs: $36.9M, 5.1% of revenue
- Interest, other & tax: $13.8M, 1.9% of revenue
Kept 3.7% as net incomeNet income $26.9M · 3.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed September 7, 2010Financial Statements
| Revenue | $721.44M |
| Cost of Revenue | $606.45M |
| Gross Profit | $114.99M |
| R&D Expenses | $37.38M |
| Operating Expenses | $74.25M |
| Operating Income | $40.74M |
| Interest Expense | $383K |
| Net Income | $26.91M |
| EPS (Basic) | $0.73 |
| EPS (Diluted) | $0.65 |
| Shares Outstanding (Basic) | 35.88M |
| Shares Outstanding (Diluted) | 40.73M |
05—Questions
Frequently Asked Questions
How did Super Micro's revenue and profitability change in fiscal 2010?
Net sales increased to $721.4 million from $505.6 million, and net income increased to $26.9 million from $16.1 million. The company attributed the growth mainly to the economic recovery and higher unit volumes of subsystems and accessories, while gross margin declined to 15.9% from 17.5%.
Why was operating cash flow negative in fiscal 2010?
The company reported net cash used in operating activities of ($2.2) million, compared with $21.8 million provided in fiscal 2009. Management cited a $48.2 million increase in inventory and a $33.3 million increase in accounts receivable, which offset net income and a $21.8 million increase in accounts payable.
What financing obligations does the company face?
The company drew $18.6 million on a $25.0 million revolving line of credit maturing June 15, 2013, to buy three San Jose buildings. It is required to obtain a mortgage loan to pay off this line by December 2010. The line bears interest at LIBOR plus 1.50%, and the company was in compliance with its covenants at June 30, 2010.
How significant is the relationship with Ablecom Technology?
Ablecom is a related party and a major contract manufacturer. Purchases from Ablecom were $124.5 million in fiscal 2010, or 20.5% of cost of sales. CEO Charles Liang's family, and Steve Liang, Ablecom's CEO, own significant stakes in Ablecom, and the auditor noted these significant related-party transactions.
Are there any notable legal or investment risks disclosed?
The Digitechnic lawsuit in France resulted in a $1.1 million litigation loss provision in fiscal 2010, which was paid in December 2009. The company also held $6.7 million of auction rate securities at June 30, 2010, which are not currently liquid, with $5.9 million classified as long-term.
06—Continue