01—Abstract
Summary
Summary of the 10-K filed September 11, 2013. Cited figures are marked; the original filing is the authoritative source.
Super Micro Computer, Inc. reported fiscal 2013 (year ended June 30, 2013) net sales of $1,162.6 milliona, up from $1,013.9 million in fiscal 2012, but net income fell to $21.3 million from $29.9 million.
The filing attributes the decline primarily to lower gross profit from higher sales of subsystems and accessories, which carry higher content of lower-margin hard disk drives and memory, plus higher research and development expenses. Gross profit was $160.1 millionb versus $165.4 million, and cost of sales rose to 86.2% of net sales from 83.7%. Diluted earnings per share were $0.48, compared with $0.67 in fiscal 2012.
Server systems represented 43.2% of net sales and subsystems and accessories 56.8%. The company's balance sheet and liquidity remained stable. Cash and cash equivalents were $93.0 millionc at June 30, 2013, and total stockholders' equity was $373.7 million.
Net cash provided by operating activities was $13.6 milliond, and the company stated it has sufficient cash on hand to operate for at least the next 12 months. Total debt was $35.2 million, and the company has a hard disk drive purchase commitment of approximately $132.1 million running through December 2014, which is expected to weigh on future margins. The company is also exposed to related-party dealings with Ablecom Technology Inc., a major contract manufacturer, which accounted for 17.9% of cost of sales in fiscal 2013.
Investors should note that the company's management stated that its operating results have historically been subject to quarterly fluctuation and that customers largely place purchase orders rather than long-term contracts. Revenue is recognized on a sell-in basis to distributors, and the Asia region's revenue grew 35.1% during the year. The company also disclosed that its founder and CEO, Charles Liang, is critical to the business and that no succession plan is currently in place.
02—Key points
Key Highlights
- Net sales rose to $1,162.6 million in fiscal 2013 from $1,013.9 million in fiscal 2012, an increase of 14.7%.
- Net income declined to $21.3 million from $29.9 million, and diluted EPS fell to $0.48 from $0.67.
- Gross profit decreased to $160.1 million from $165.4 million, with cost of sales rising to 86.2% of net sales from 83.7%, driven by higher hard disk drive and memory costs and a greater mix of subsystems and accessories.
- Research and development expenses rose 17.1% to $75.2 million, representing 6.5% of net sales.
- Asia region revenue grew 35.1%, supported by the first full year of operation at the Taiwan facility.
- Cash and cash equivalents were $93.0 million at June 30, 2013, and operating cash flow was $13.6 million.
- Hard disk drive purchase commitments totaled approximately $132.1 million through December 2014, a factor the company expects to affect future gross profit.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Super Micro Computer kept $0.02.
- Revenue$1.16B100.0%
- Cost of revenue−$1.00B86.2%
- Gross profit$160.1M13.8%
- Operating costs−$132.9M11.4%
- Operating income$27.2M2.3%
- Interest, other & tax−$5.9M0.5%
- Net income$21.3M1.8%
Where FY2013 revenue went
$1.16B- Cost of revenue: $1.00B, 86% of revenue
- Net income: $21.3M, 1.8% of revenue
- R&D: $75.2M, 6.5% of revenue
- Other operating costs: $57.7M, 5.0% of revenue
- Interest, other & tax: $5.9M, 0.5% of revenue
Kept 1.8% as net incomeNet income $21.3M · 1.8%Interest, other & tax $5.9M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed September 11, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.16B$1.01B | +14.7% |
| Cost of Revenue | $1.00B$848.46M | +18.2% |
| Gross Profit | $160.05M$165.42M | −3.2% |
| R&D Expenses | $75.21M$64.22M | +17.1% |
| Operating Expenses | $132.90M$119.40M | +11.3% |
| Operating Income | $27.16M$46.01M | −41.0% |
| Interest Expense | $610K$717K | −14.9% |
| Net Income | $21.28M$29.85M | −28.7% |
| EPS (Basic) | $0.50$0.72 | −30.6% |
| EPS (Diluted) | $0.48$0.67 | −28.4% |
| Shares Outstanding (Basic) | 41.99M40.89M | +2.7% |
| Shares Outstanding (Diluted) | 43.91M44.15M | −0.6% |
05—Questions
Frequently Asked Questions
Why did net income decline in fiscal 2013 even though net sales grew?
The company attributed the decline primarily to lower gross profit resulting from higher sales of subsystems and accessories, which contain higher content of lower-margin hard disk drives and memory, along with higher research and development expenses. These were partially offset by a $3.7 million tax benefit related to the U.S. federal R&D tax credit.
What is the company's exposure to Ablecom Technology?
Ablecom, a related party, is one of the company's major contract manufacturers. Purchases from Ablecom represented 17.9% of cost of sales in fiscal 2013. Charles Liang and his spouse collectively own approximately 10.5% of Ablecom, and the filing states the company may not negotiate as aggressively with Ablecom as it would with an unrelated party.
Is the company facing near-term liquidity or debt pressure?
Total debt was $35.2 million at June 30, 2013, with $28.6 million classified as current. Management stated it expects to fund its remaining obligations from operations and existing cash, and that it has sufficient cash on hand to operate for at least the next 12 months, assuming it extends or obtains its credit facilities. The Bank of America revolving line and the China Trust Bank loan were both under negotiation for renewal.
What risks does the hard disk drive purchase commitment create?
The company entered into purchase agreements with selected hard disk drive suppliers after flooding in Thailand. The commitments totaled approximately $132.1 million as of June 30, 2013, and will be paid through December 2014. The filing states that higher costs compared with lower selling prices under these agreements contributed to lower gross profit in fiscal 2013 and will likely affect future gross profit.
How concentrated is the company's customer base?
No customer accounted for 10% or more of net sales in fiscal 2013, 2012 or 2011. Sales through distributors represented 56.3% of net sales in fiscal 2013. The company noted that as it increasingly targets larger customers, its customer base may become less diversified and its sales less predictable.
06—Continue