管理層發言
Thank you for standing by. My name is Christa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Super Micro Computer, Inc. Third Quarter 2026 Earnings Call. With us today are Charles Liang, Founder, President and Chief Executive Officer; David Weigand, Chief Financial Officer; and Michael Staiger, Senior Vice President of Corporate Development. Operator Instructions: To ask a question, press star then one on your telephone. I would now like to turn the conference over to Michael Staiger. Please go ahead.
Good afternoon, and thank you for attending Super Micro's call to discuss financial results for third quarter fiscal 2026, which ended March 31, 2026. As you know, with me today are Charles Liang, Founder, Chairman and Chief Executive Officer; David Weigand, Chief Financial Officer. By now, you should have received a copy of the press release from the company that was distributed at the close of regular trading and is available on the company's website. As a reminder, during today's call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company's website under the Events and Presentations tab. We've also published management's scripted commentary on our website. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expenses, taxes, capital allocation, future business outlook, including guidance for the fourth quarter of fiscal year 2026 and the full fiscal year 2026.
These statements and other comments are based on management's current expectations and assumptions and involve material risks and uncertainties that could cause actual results or even events to materially differ from those anticipated, and you should not place undue reliance on forward-looking statements. You can learn more about these risks and uncertainties in the press release we issued earlier today, our most recent 10-K filing for fiscal '25 and other SEC filings. All of these documents are available on the IR page of Super Micro's website. We assume no obligation to update any forward-looking statements. Most of today's presentation will refer to non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the company presentation or to our press release published earlier today. The non-GAAP measures are presented as we believe that they provide investors with the means of evaluating and understanding how management evaluates the company's operating performance.
These non-GAAP measures should not be considered in isolation from, or as a substitute for or superior to, financial measures prepared in accordance with U.S. GAAP. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and in the supplemental information attached to today's presentation. At the end of today's prepared remarks, we will have a Q&A session for sell-side analysts. Our fourth quarter fiscal 2026 quiet period begins at the close of business Friday, June 12, 2026. And for now, I will turn the call over to Charles.
Thank you, Michael, and thank you all for joining today's call. We had significant business value growth with our technology leadership and market expansion. However, before I discuss the specifics of the quarter, I want to provide an update on the recent development regarding the indictment of certain individuals formerly associated with the company. I must be clear: Super Micro is not a defendant nor a target of a grand jury investigation and Super Micro has zero tolerance for any employee who violated federal law and regulation. I am personally shocked and saddened by this alleged action, which in no way represents the values or ethics of this company. We took immediate action by terminating our relationship with the defendants and are helping and cooperating fully with the U.S. government. Additionally, our independent directors have launched a thorough independent investigation with top forensic and legal firms to ensure we continue to maintain the highest standard of integrity.
We are not waiting for this process to finish. We have further strengthened our global trade compliance program under expert leadership. Not only is Super Micro fully committed to protecting advanced American technology and following the highest business standards, but we continue to expand our manufacturing footprint right here in the United States. Again, the alleged actions of a few individuals do not define us. Our focus remains on doing extraordinary work for our customers and partners and leading the industry with transparency and excellence. Now let's talk about the quarter. This was a quarter defined by value and focus for Super Micro. Despite the industry-wide shortage of key components, including CPU, GPU and memory, our business continues to grow and expand. Indeed, our backlog is now at another record high. We advanced and optimized data center infrastructure using our leading direct liquid cooling (DLC) technology.
Our focus remains on delivering the fastest time to online (TTO) in the industry, ensuring our customers can scale their AI factories quickly and most efficiently. While our fiscal Q3 revenue of $10.2 billion was impacted by customer site readiness delays, our business fundamentals are stronger than ever. This is purely a short-term delay. Several customer sites were not yet equipped with the power and networking required for their cloud deployment, and we expect to capture this revenue in the coming quarters. One of the most significant achievements this quarter was our gross margin recovery, which increased significantly to 10.1% non-GAAP, representing a 58% improvement over the 6.4% non-GAAP reported in the previous quarter. We are committed to achieving a sustainable double-digit gross margin model by increasing our focus on the enterprise market and our Data Center Building Block Solutions (DCBBS) business.
Here are some key growth drivers. First, market strength: Business remains very strong in the NeoCloud, sovereign AI and agent AI segments. We have been aggressively fostering the traditional enterprise and storage business for about one year, and we are starting to see strong growth and growing opportunities. Our DCBBS continues to attract both existing and new customers' interest and create new profit streams. By offering a total data center solution that includes complete liquid cooling facilities, management software, networking and service, we are providing much more value to our customers as they commit to our total solutions, which improves product mix and efficiency. We improved our product mix with some more unique value products in this quarter and thereafter. We also advanced our design for manufacturing (DFM) and increased automation in our factories to build products faster with higher yield rate and quality and improved supply chain performance.
We successfully managed inventory through a dynamic supply environment and took actions to reduce tariff-related cost pressure. These efforts help improve our flexibility, protect margin and support the customer delivery timeline. Here is the bigger story. Super Micro is evolving from a U.S.-based server designer and manufacturer into a total data center solution provider. We expand our business to help customers plan, build, deploy and service data center infrastructure for global enterprise and NeoCloud providers, especially. Our DCBBS business is essential to this transformation, providing almost everything a customer needs to build an AI factory, including cooling units, networking, power, battery backup, management software and many other data center subsystems. Our DCBBS business continues to grow exactly as we planned, showing a consistent and accelerating contribution to our top line and bottom line quarter-over-quarter.
I believe our DCBBS will soon contribute more than 25% of our total profit in the coming few years. As an IT technology leader for more than 30 years, we have consistently turned industry disruption into innovation and strong new opportunities. One of the key value drivers of our DCBBS business is our data center end-to-end management software. We see significant demand for the Super Micro data center and cloud software suite, including our SuperCloud Composer that manages tens of thousands of systems or racks in real time. It provides comprehensive control over system and rack-level power usage, cooling status, safety condition and device utilization alongside many other critical features. Our management software features also include advanced CPU and GPU workload orchestration, which is a critical function for today's AI data center. The revenue from this new software product line is finally growing at a tremendous pace, increasing from less than $10 million per quarter just a few quarters ago to $34 million last quarter, and more than $46 million booked for this quarter.
By bundling subscription-based software and service alongside our hardware, we are strengthening our customer relationships and improving our long-term profitability. We expect DCBBS, including software and service, to continue its rapid growth and to become a major part of our key value mechanism. We continue to grow and expand our partnership with many key suppliers. Especially with NVIDIA, we are currently shipping many SKUs of the latest rack-scale systems, including GB300 NVL72, MNB-300 HGXQ, B200 NVL4 and inferencing application-optimized RTX product lines. We are preparing to be among the first to market with the new Vera Rubin systems, including the NVL72 SuperCluster. We continue to build on the strong momentum of our AMD MI350 platform as we prepare for the next generation of AMD Helios solutions, featuring EPYC Venice and MI400 series of products. In addition, we are working closely with Intel and Arm on the development of upcoming Xeon 6+ platforms and a new addition to our portfolio, including Arm AGI GPU-based solutions.
This system will deliver exceptional performance per watt, specifically optimized for the growing demand of agentic AI workloads. By leveraging Super Micro's system building block solution and data center scale building block architecture, we can efficiently support a wide variety of compute platforms and optimize them for different business verticals. Moving on to our footprint. We are expanding our global production capacity with new facilities to better support AI demand across the world. Our sites in Taiwan, Malaysia and the Netherlands are all ramping up aggressively. Domestically, we recently announced our largest U.S. site to date, a new DCBBS campus in Silicon Valley, just one mile away from our headquarters. This brings our total Bay Area footprint to nearly 4 million square feet, featuring eight new buildings optimized for innovation, design, production and validation of our next-generation end-to-end data center total solutions.
Within this new campus, we are building multiple large-scale validation and production facilities. Some of them include a clean room specifically to support our new DLC-2 subsystem and next-generation networking solutions, including advanced optical photonics-based devices. With these expansions, we are on track to produce more than 6,000 of the world's most powerful AOR racks per month. In closing, Super Micro continues to scale our revenue and scale up value. We have strengthened our governance, delivered a meaningful margin recovery and expanded DCBBS growth in both volume and value through software, networking, service and more. Our leadership in DLC technology paves our ability to deliver large-scale total solutions at the industry's fastest time to online and will continue to fuel our strong growth, keeping Super Micro at the center of the AI revolution. With that, I remain very bullish about our growth in the AI and data center market. For the fourth quarter, we target $12 billion, given stable supply conditions. For the full year, we target $40 billion. I will turn this over to David.
Thank you, Charles. Fiscal Q3 FY '26 revenue was $10.2 billion, up 123% year-over-year and down 19% quarter-over-quarter. As Charles mentioned, the Q3 revenue was impacted by data center and customer readiness together with industry-wide supply chain constraints. We expect to recognize the deferred revenue in the upcoming quarters. Orders and backlog remain strong across our customer base, driven by AI infrastructure demand with AI GPU-related platforms contributing over 80% of revenue. During Q3, the enterprise channel revenue totaled $2.8 billion, representing about 28% of revenue versus 15% in the prior quarter. This was up 46% year-over-year and up 45% quarter-over-quarter. The OEM appliance and large data center segment revenue was $7.4 billion, representing approximately 72% of Q3 revenue versus 85% in the last quarter. This was up 183% year-over-year and down 31% quarter-over-quarter.
For Q3 FY '26, we had two existing customers, each representing more than 10% of revenues: one large data center customer at 27% of revenues and an enterprise customer at 10% of revenues. By geography, the U.S. represented 69% of Q3 revenue; Asia, 13%; Europe, 7%; and Rest of World, 11%. On a year-over-year basis, U.S. revenue increased 154%, Asia grew 1%, Europe grew 146% and the Rest of World increased nearly 500%. On a quarter-over-quarter basis, U.S. revenue decreased 36%, Asia increased 17%, Europe increased 105% and the Rest of World increased 392%. The Q3 non-GAAP gross margin was 10.1%, up from 6.4% in Q2. Gross margins were ahead of expectations, driven by our customer and product mix, together with lower tariffs, expedite and inventory reserve charges. Q3 GAAP operating expenses were $393 million, which was up 34% year-over-year and up 21% quarter-over-quarter. On a non-GAAP basis, operating expenses were $278 million, up 29% year-over-year and up 16% quarter-over-quarter.
Both GAAP and non-GAAP operating expenses were up quarter-over-quarter due to higher headcount-related expenses. Non-GAAP operating margin for Q3 was 7.3% compared to 4.5% in Q2. Other income and expense for Q3 totaled a net expense of $15 million, reflecting $49 million in interest and other income, offset by $64 million in interest expense related to convertible notes and the revolving credit facilities. The tax provision for Q3 was $127 million on a GAAP basis and $156 million on a non-GAAP basis, resulting in a GAAP tax rate of 20.8% and a non-GAAP tax rate of 21.1%. The Q3 GAAP diluted earnings per share was $0.72 compared to guidance of at least $0.52 and non-GAAP diluted EPS was $0.84 versus guidance of at least $0.60 due to higher gross margins. The GAAP fully diluted share count decreased sequentially from 694 million in Q2 to 692 million in Q3, while the non-GAAP share count was largely flat at 709 million in Q3 compared to Q2.
Cash flow used in operations for Q3 was $6.6 billion compared to $24 million used in the prior quarter. Operating cash flow was impacted by a reduction of $10 billion in accounts payable and by an increase in inventory of $581 million. These factors were only partially offset by higher net income and a reduction of $2.6 billion in accounts receivable. The Q3 closing inventory was $11.1 billion, up from $10.6 billion in Q2. CapEx for Q3 totaled $80 million, resulting in negative free cash flow of $6.7 billion for the quarter. At quarter end, our cash position totaled $1.3 billion. Furthermore, $2.7 billion of accounts receivable collections expected in March were received in early April. Our bank and convertible note debt was $8.8 billion, resulting in a net debt position of $7.5 billion compared to a net debt position of $787 million in the prior quarter. In addition to using our existing U.S. revolving credit facility and non-recourse AR sale facility, we set up and commenced usage of a $1.8 billion Taiwan revolving credit facility to further support working capital requirements.
Turning to the balance sheet and working capital metrics. The cash conversion cycle increased from 54 days in Q2 to 106 days in Q3. Days of inventory increased by 43 days to 106 days versus 63 days in the prior quarter. Days sales outstanding increased by 36 days to 85 days versus 49 days in Q2, while days payables outstanding increased by 27 days to 85 days versus 58 days in Q2. Now turning to the outlook for Q4 fiscal year '26, which ends June 30, 2026. We expect net sales in the range of $11 billion to $12.5 billion. We expect GAAP diluted net income per share of $0.53 to $0.67 and non-GAAP diluted net income per share of $0.65 to $0.79. We expect gross margins to be in the range of 8.2% to 8.4% based on expected customer mix. GAAP operating expenses are expected to be around $433 million, which include approximately $114 million in stock-based compensation expenses that are excluded from non-GAAP operating expenses.
The outlook for Q4 of fiscal year 2026 fully diluted GAAP earnings per share includes approximately $95 million in expected stock-based compensation expenses, net of tax effects of $30 million, which are excluded from non-GAAP diluted net income per common share. We expect other income and expenses, including interest expense, to result in a net expense of approximately $36 million. The company's projections for Q4 fiscal year '26 GAAP and non-GAAP diluted net income per common share assume a GAAP tax rate of 19.4%, a non-GAAP tax rate of 20.4% and a fully diluted share count of 695 million shares for GAAP and 712 million shares for non-GAAP. Capital expenditures for Q4 are expected to be in the range of $30 million to $50 million. For the full fiscal year 2026, we expect net sales to be in the range of $38.9 billion to $40.4 billion. Michael, we're now ready for Q&A.
Great. Before we begin Q&A, I just like to remind everyone that the purpose of this call is to discuss our third quarter fiscal '26 financial results. As such, we ask that you focus your questions on the results we announced today. Thank you in advance. And Christa, let's begin.
分析師問答
Operator Instructions: At this time, we will begin the question-and-answer session. Your first question comes from Ananda Baruah with Loop Capital.
Congrats on the progress with the gross margin. It's great to see that. A couple, if I could. I guess the first one would be just on some of the stuff that's been sort of press released by you guys throughout the quarter. Specifically, could you give us an update on the indictment? Any more insight into any company employee involvement? Do you think you'll have to restate earnings? Are you on track to file your 10-Q, things like that? And then part and parcel with that, on the Board investigation that you guys announced, if you could talk to the opportunity that that could have to strengthen the organization and what those opportunities might be, that would be great. And then I have a quick follow-up.
Okay. Thanks, Ananda. So the company was surprised and disappointed to learn of the alleged diversion to China of certain of our products. As we've previously announced, we're taking this matter seriously. The alleged conduct would violate our export control policies and procedures, and we're fully cooperating with the U.S. government to address this situation. In addition, our independent directors have retained an outside law firm, Munger, Tolles & Olson, and a forensic firm, AlixPartners, to conduct an independent investigation into these events. The investigations are ongoing, and we can't give you any final information at this time. So based on what we know so far, though that could change as the investigation progresses, no one from the company other than those named in the DOJ indictment was involved. As to your second question on restatement of earnings, based on everything we know at this moment and considering the independent investigation is ongoing, we do not believe we will need to restate.
And lastly, on the 10-Q, again, the independent investigation is ongoing and any filing will be subject to BDO review. But based on what we know at this moment, we are planning to file our 10-Q and are preparing accordingly. And I think your last comment about the independent investigation is important: certainly, we will be taking to heart the results of the independent investigation, and we will look at that as an opportunity to grow and strengthen.
Yes. Thank you for the question. Indeed, we are growing our customer base, like the last few quarters I shared. Now we have many more large customers and midsized customers. From our experience working with and communicating with customers, most of the customers indeed feel pretty solid to continue our business and continue to grow together. So at this moment, I personally don't feel a negative reaction from customers.
Your next question comes from the line of Samik Chatterjee with JPMorgan.
This is MP on behalf of Samik Chatterjee. For my first one, I just wanted to ask: in your last call, you mentioned DCBBS contributions to profits during the first half of about 4%. Can you please update how it tracked during the quarter? And how much of a driver was that relative to the gross margin improvement that you saw during the quarter? And I have a follow-up.
Yes, a very good question. Our DCBBS indeed continues to gain more and more traction from our existing customers and new customers. It is a very good value-add to our hardware and also enhances our relationship with the customer. Customers who use our DCBBS continue to grow. We believe this growth will continue strongly. In the next two years, I personally expect at least 20% of our net income will be from DCBBS, including the management software.
Okay. And then for my follow-up, I just wanted to ask on capacity additions, which you've done during the quarter. Can you please help us quantify the revenue capacity that it helped to add for the company?
Yes, also a very good question. Again, our capacity now is very large, but we continue to grow our capacity because we want to make sure we are ready for a new generation of data center needs for the industry. For example, much higher power and computing density and also in photonics technology and new generation of switches. We are preparing for all of that. Some of the new facilities include clean rooms so that we are able to provide the best liquid cooling, the best communication bandwidth and minimize power consumption for the next-generation data center needs. So although our capacity is already big, we continue to build more capacity.
Your next question comes from the line of Victor Chiu with Raymond James.
I just wanted to follow up on the first question that was asked. Does the investigation around the issue potentially impact your relationship with NVIDIA, and subsequently your allocation or supply of GPUs and other components? Because I think that's another frequent point of concern that we get from clients these days: how that impacts your relationship and whether that dynamic has changed at all.
Our relationships with vendors have been very long-term, including NVIDIA, AMD, Intel and Broadcom. At this moment, we feel our partnerships will stay strong and, if anything, remain as strong as before. We continue to work together on many new projects. We have shared with our vendors that this involved a few employees' individual case. So I hope there will be no impact. David, do you want to add something to that?
Yes. Our understanding is that there has been no change in allocation.
That's very helpful. And just a quick follow-up: The investments that you previously noted that you made in engineering support and services, have those mostly peaked now? Is that contributing to the margin expansion at this point?
I'm sorry, could you repeat that?
The investments that you've noted previously regarding engineering support and services, have those peaked now at this point? Or where are we in the progress of those investments? And how is that contributing to margin dynamics going forward?
Yes, a very good question. Our service business, including data center planning, designing, deploying and other build-out services, continues to grow. We continue to expand that service team and consulting team and revenue continues to grow. In this segment, the profit is much better than our average hardware, for sure.
But I would say it has not peaked. We're just gaining traction.
Your next question comes from the line of Asiya Merchant with Citi.
On the supply constraints, there's been a lot of talk about CPU-based shortages. So just on the guide that you're providing, are you constrained in any components here? And would there be a number if the supply issues were resolved? Basically, were you constrained by supply? And then if I can squeeze in one more on the data center: relative to where you were last quarter when it was just starting to kick through, can you help us understand what kind of customers you're seeing traction with for these Data Center Building Block Solutions — whether there's any change in vertical or geographic mix?
Thank you. In terms of shortages, I believe it's a global common problem. Over the last six months, memory and SSD prices grew a lot — some doubled, tripled — and there has been some CPU shortage, especially from Intel, and even some GPU shortage. So like other system companies, we have suffered from those shortages. Those shortages may continue for an unknown period, especially memory and SSD. But we have very good relationships with our vendors, so we continue to work with them to gain more long-term support. As to our customer base, as I shared last time, we have gained many more enterprise customers globally and NeoCloud customers. We have added more large customers and many midsized and small customers. We will continue in this direction to support more customers.
Your next question comes from the line of Katherine Murphy with Goldman Sachs.
I was wondering if there were any one-time items that impacted gross margins in the quarter, and anything you could share to quantify? I think you mentioned tariffs, expedite fees and inventory reserve charges. That would be helpful. And then I have a quick follow-up.
Sure. Regarding tariffs, as you know, some tariffs were reduced by the Supreme Court, and there were some replacement tariffs that came in. We are hopeful that tariffs will be down on a net basis going forward. Whether I look at that as temporary or ongoing is a matter of optimism. Regarding expedite fees, we had a very large deployment in the quarter that ended in December which incurred a lot of expedite charges. Those did not recur in the March quarter. Therefore, we expect those charges to be lower going forward compared to that prior elevated period. As to the supply constraints, as Charles mentioned, they were especially troublesome over the last six months, but we expect some challenges going forward, just not at the same elevated level we saw during that prior period.
That was very helpful. And then in terms of thinking about the revenue miss in the quarter being related to a delivery that was delayed because of customer readiness, and that deal was contemplated in your prior guidance for a margin benefit that was modest quarter-over-quarter — was that deal that flipped or was otherwise delayed a drag on consolidated gross margins? How should we think about the impact to margins as the revenue from that deal gets recognized in the coming quarters?
So we think that some of the large deals that we talked about in the past have been incrementally beneficial to Super Micro because of our reputation in deploying large-scale installations in top sites. What we noticed is that we're getting more large engagements that diversify our customer base, and we're also getting better margins from those sales. We actually had more diversification this quarter, and we see that continuing into the June quarter as well. On a net basis, some of the strategic decisions we made on large installations have been beneficial.
Your next question comes from the line of Ruplu Bhattacharya with Bank of America.
I've got two. The first is a clarification on revenues and gross margins. David, you mentioned that there was some pushout of revenue into future quarters. Can you help quantify how much of that is coming back in the June quarter versus how much will be in future quarters? And on the margin side, can you clarify how you're thinking about the margin decline from fiscal Q3 to fiscal Q4? I think you guided 8.2% to 8.4% gross margin on higher $11.8 billion of revenue. What are some of the factors impacting gross margins between fiscal Q3 and Q4? And I have a follow-up.
Sure. Regarding deferred revenue, it comes down to customer readiness and when their data centers are ready. We're optimistic we can ship quickly, but that depends on the customer's timeline. We have to wait and see how much lands in the June quarter versus the September quarter. As to margins, margin mix is determined by which customers we sell to and which products we sell; that's the biggest dynamic affecting our margins. We see a good upward trend into that 8.2% to 8.4% range, but it will depend on which customers we ultimately sell to.
Got it. Can I ask a follow-up on working capital? In the past, when we've had GPU transitions, you've had to spend some working capital and time and money as customers qualify these new racks. So as NVIDIA releases new GPUs and transitions happen, how are you thinking about working capital needs? Is there a chance you might come to the capital markets again to raise capital for working capital?
Yes, very good question. We are diversifying our customer base and improving our product value. Now we have more partnerships: we not only build AI servers and storage, but we help customers deploy entire data centers with DCBBS total solutions. Our business will be more diversified and smoother in terms of revenue dynamics and margin changes. We are improving in a very positive direction quarter after quarter.
Okay. And in terms of working capital, David, any thoughts there?
Yes. What I would say is I hope we won't need to go back to the markets for more money because... (laughs) But it depends on how fast our growth rate is.
If we grow a lot, we may need additional capital. But if we grow more steadily, I believe our capital should be sufficient because our business model is improving.
Your next question comes from the line of Nehal Chokshi with Northland Capital Markets.
Congratulations on the strong gross margin. Charles, you mentioned that over the next two years you're targeting 20% from DCBBS. Was that 20% of gross profit or revenue?
Profit.
Okay. And I can't remember: did you give a percentage or a dollar number of DCBBS in the quarter and the quarter-ago period? Can you repeat that quickly?
We didn't give that percentage out, Nehal. Our gross margin did increase on our data center sales, but I don't have the percentage of our gross profit that represented.
So thinking about the significant improvement in gross margin, would you bucket that more toward the DCBBS ramp or more toward the reduction in the single large customer's share going from 63% to 27% from December to March?
I would say there are two factors. One is the DCBBS solutions — in that segment our profit margins are often above 20%. The other is the enterprise customer focus: we started to grow many more enterprise customers, and we will continue in that direction. Both will improve our gross margin and net margin.
Included in the guidance is the expectation that this customer that was 27% of revenue in the current quarter will continue to be a greater-than-10% customer?
Yes, we will have many more NeoCloud-style midsized cloud customers and even small-sized cloud customers. We will continue to support large cloud customers as well, but with more NeoClouds, small clouds and enterprise clouds, our overall margin should continue to improve.
Your next question comes from the line of Quinn Bolton with Needham & Company.
This is Neil Young on for Quinn Bolton. Could you touch on what drove the strong quarter-over-quarter increase in enterprise? Are you expecting healthy enterprise growth again in the next quarter and through fiscal '27? Or should we think the revenue split by channel will revert closer to Q2 levels? I have a follow-up.
We don't provide all the detailed breakdowns, but the direction is strong. We have improved and added many more enterprise customers, and we see a lot of customers that like to work with us. DCBBS helps us engage more new cloud and enterprise AI data center customers. Long term, we are comfortable with this direction.
That's helpful. And on gross margin: can you help us think about what level is sustainable as we look into fiscal year '27 given that large AI deployments may trend toward being a bigger mix of revenue in coming quarters?
We believe we will continue to grow in a healthy way because we are expanding our customer base, product line, and total solutions including software and services. We are becoming a much higher-value partner to the market.
Your next question comes from the line of John (Jonathan) Tanwanteng with CJS Securities.
Really nice quarter. I was wondering if you could address a bit more on the export violation issue and if that might impact your ability to finance growth or the cost to finance growth going forward. I don't know if you talked about the cost of remediation or addressing the violations and preventing them from happening again. If you could help disclose that, that would be helpful as well.
John, I'll reiterate the comments I made earlier: the company was not named in this. We take this very seriously and are conducting an internal investigation as mentioned. I don't want to add more to that at this time.
Based on what we know so far, though this could change as the investigation progresses, no one from the company other than those named in the DOJ indictment was involved. We have strong confidence in our integrity.
Perfect. And I have a follow-up. You mentioned record backlog and strong orders. What does that indicate heading into the back half of this calendar year from a growth perspective? And can the supply environment support growth over the first half?
We are a fast-growing company, and we can grow much faster if we accept lower-margin business. We try to balance growth with gross margin and net margin. We are in good shape and can control the balance between growth and margin.
Your final question comes from the line of Mark Newman with Bernstein.
Congrats on the gross margin. It sounds like the gross margin rebound was driven partly by reduced expedition charges and also by an improved enterprise mix. Can you clarify if that is correct? And within enterprise, is that AI server or more traditional server? Also, on revenue: it sounds like the slight revenue miss was due to the large customer pulling some shipments; as that revenue is recognized, would that be a drag on margins? And any clarity on backlog — I didn't hear a number and how it's changed over time.
Indeed, both factors contributed. Within enterprise, we see AI enterprise demand, especially generative AI inferencing applications. We also see demand from traditional server and storage, even IoT, and we are expanding in those markets as well.
Okay. And on the revenue — the reason for the slightly light revenue was this large customer that was 63% last quarter now pushed out a little to 27%. As that customer comes back, is that going to be a drag on margins in the coming quarters? And any clarity on the record backlog number?
We don't give out our backlog number. We will make general comments that it is very strong. As I mentioned earlier, we have diversified our pipeline extensively. We have a number of large deals from new NeoClouds and cloud service providers that we expect to increase our footprint, customer diversity and margins, along with DCBBS and enterprise expansion.
Thank you. Ladies and gentlemen, that does conclude today's conference call. Thank you all for your participation, and you may now disconnect.