01—Abstract
Summary
Summary of the 10-K filed September 2, 2011. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. reported fiscal 2011 (year ended June 30, 2011) net sales of $942.6 milliona, up from $721.4 million in fiscal 2010, and net income of $40.2 million, up from $26.9 million.
The company states it has been profitable every year since it commenced operations in 1993. Gross profit rose to $151.1 millionb from $115.0 million, and income from operations was $58.7 million versus $40.7 million. Management attributes the growth primarily to the server refresh cycle and increased sales across product lines, with the largest gains in SuperBlade, GPU and storage solutions.
Server systems were 37.3% of net sales and subsystems and accessories were 62.7%. Balance sheet and liquidity items were mixed. Inventory increased to $192.7 millionc from $135.6 million, and operating cash flow was $8.5 million, compared with $(2.2) million in fiscal 2010.
Total debt rose to $28.2 milliond, including building loans, and the company reported it was not in compliance with an investment covenant at June 30, 2011, for which it obtained waivers from lenders in August 2011. The company plans to spend approximately $16.9 million over the next twelve months on Taiwan facilities and a San Jose headquarters expansion, financed through operating cash flow and bank borrowings. The filing also highlights concentration and related-party exposure.
Ablecom Technology, a related party controlled in part by the CEO's family, accounted for 19.6% of cost of sales in fiscal 2011, and the auditor's report notes significant related-party purchases and sales. Sales to customers outside the United States were 41.7% of net sales. The filing discloses risk factors including reliance on Intel, AMD and Nvidia as the only microprocessor suppliers, the sell-in revenue model, and $5.2 million of auction rate securities.
02—Key points
Key Highlights
- Net sales rose to $942.6 million in fiscal 2011 from $721.4 million in fiscal 2010, and net income rose to $40.2 million from $26.9 million.
- Diluted earnings per share were $0.93 in fiscal 2011, compared with $0.65 in fiscal 2010.
- Inventory increased to $192.7 million from $135.6 million, and days sales of inventory rose to 75 days from 67 days.
- Operating cash flow was $8.5 million in fiscal 2011, compared with $(2.2) million in fiscal 2010.
- Total debt rose to $28.2 million, and the company was not in compliance with an investment covenant at June 30, 2011, for which it obtained lender waivers in August 2011.
- Ablecom, a related-party contract manufacturer, accounted for 19.6% of cost of sales in fiscal 2011, down from 20.5% in fiscal 2010.
- The company plans approximately $16.9 million of spending over the next twelve months on Taiwan facilities and a San Jose headquarters expansion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Super Micro Computer kept $0.04.
- Revenue$942.6M100.0%
- Cost of revenue−$791.5M84.0%
- Gross profit$151.1M16.0%
- Operating costs−$92.4M9.8%
- Operating income$58.7M6.2%
- Interest, other & tax−$18.5M2.0%
- Net income$40.2M4.3%
Where FY2011 revenue went
$942.6M- Cost of revenue: $791.5M, 84% of revenue
- Net income: $40.2M, 4.3% of revenue
- R&D: $48.1M, 5.1% of revenue
- Other operating costs: $44.3M, 4.7% of revenue
- Interest, other & tax: $18.5M, 2.0% of revenue
Kept 4.3% as net incomeNet income $40.2M · 4.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed September 2, 2011Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $942.58M$721.44M | +30.7% |
| Cost of Revenue | $791.48M$606.45M | +30.5% |
| Gross Profit | $151.10M$114.99M | +31.4% |
| R&D Expenses | $48.11M$37.38M | +28.7% |
| Operating Expenses | $92.41M$74.25M | +24.5% |
| Operating Income | $58.69M$40.74M | +44.0% |
| Interest Expense | $686K$383K | +79.1% |
| Net Income | $40.21M$26.91M | +49.4% |
| EPS (Basic) | $1.04$0.73 | +42.5% |
| EPS (Diluted) | $0.93$0.65 | +43.1% |
| Shares Outstanding (Basic) | 38.13M35.88M | +6.3% |
| Shares Outstanding (Diluted) | 42.40M40.73M | +4.1% |
05—Questions
Frequently Asked Questions
How did Super Micro Computer's revenue and profitability change in fiscal 2011?
Net sales increased to $942.6 million from $721.4 million, and net income increased to $40.2 million from $26.9 million. Management attributed the growth primarily to the server refresh cycle and increased sales across product lines, with gains in SuperBlade, GPU and storage solutions.
What is the company's exposure to related-party transactions?
Ablecom Technology, a major contract manufacturer, is a related party. Purchases from Ablecom were $155.4 million in fiscal 2011 and represented 19.6% of cost of sales. The CEO's brother is Ablecom's CEO, and the CEO and his spouse jointly own approximately 10.5% of Ablecom. The auditor's report notes these significant related-party transactions.
Did the company have any liquidity or covenant concerns at year end?
Operating cash flow was $8.5 million, and inventory rose to $192.7 million. Total borrowings were $28.2 million, and the company was not in compliance with an investment covenant at June 30, 2011. It obtained waivers from the lenders in August 2011. The unused revolving line of credit was $10.4 million.
What are the key risks investors should note from the filing?
The filing cites dependence on Intel, AMD and Nvidia as the only microprocessor suppliers without long-term agreements, a sell-in revenue model that records revenue on shipment to distributors, intense competition with lower pricing pressure, and $5.2 million of auction rate securities that are not currently liquid.
What are the company's expansion plans?
The company began construction in the fourth quarter of fiscal 2011 on Taiwan manufacturing facilities and a San Jose headquarters expansion, with anticipated costs of approximately $16.9 million over the next twelve months. It plans to finance these through operating cash flows and additional bank financing, and it purchased land in Taiwan with a further land deposit of $9.2 million.
06—Continue