Bernstein: Super Micro Computer’s quarterly revenue beats expectations, but order conversion and cash flow remain constrained

Where was first-quarter growth strongest?

Revenue in the first quarter of fiscal 2027 was 19.95 billion dollars, up 298% year over year and 79% quarter over quarter. It exceeded the market consensus by 33% and surpassed the company’s previous preliminary range of 18.5 billion to 19.5 billion dollars. The figure included 2.3 billion dollars in revenue from previously delayed deployments.
AI solutions revenue was approximately 14.2 billion dollars, up about 115% quarter over quarter, and accounted for 71% of total revenue, up from 59% in the prior quarter. Non-AI revenue also rose about 27% quarter over quarter to 5.8 billion dollars. By customer category, enterprise and channel revenue was 4.9 billion dollars, down 12% quarter over quarter following unusually strong growth in the prior quarter.
Gross margin was 12.8%, approximately 2 percentage points above market consensus and 0.3 percentage points above the top of the preliminary range. Earnings per share were 1.81 dollars, 70% above market consensus.

The company expects second-quarter revenue of 19.5 billion to 21.5 billion dollars, with a midpoint of 20.5 billion dollars, 24% above market consensus. The midpoint of earnings-per-share guidance is 1.78 dollars, roughly flat with the first quarter.
Management raised its fiscal 2027 revenue guidance from 65 billion–72 billion dollars to 72 billion–82 billion dollars. At the midpoint of the new guidance, the remaining three quarters require combined revenue of approximately 57.1 billion dollars, or about 19 billion dollars per quarter, above the roughly 17.6 billion dollars recorded in the first quarter excluding revenue from delayed deployments.
The company’s full-year gross margin guidance is 11.8% to 12.2%, below the first quarter’s 12.8%. Management expects gross margins within each customer category to remain flat or improve, but a larger share of major AI deployments could still depress the overall margin. Longer term, it is counting on customer and product diversification and more integrated solutions, software and services.

Management said backlog rose to a record despite nearly 20 billion dollars in revenue being recognized in the first quarter, indicating that new orders continue to replenish shipments. The company is assessing customer credit, end demand and data-center readiness more rigorously and seeking more customer prepayments.
Deferred revenue increased by approximately 3.1 billion dollars, mainly reflecting higher prepayments, which helped support working capital. The cash conversion cycle shortened by 52 days quarter over quarter to 97 days. However, first-quarter free cash flow was still negative 476 million dollars.
The company did not quantify its backlog, and component shortages and data-center readiness could delay deployments. A single customer accounted for 44% of revenue in the quarter. Management considers the risk of large-scale cancellations low and says most current backlog orders are non-cancellable.

Based on updated guidance and management commentary, Bernstein raised its fiscal 2027 and 2028 earnings-per-share forecasts from 3.99 and 3.53 dollars to 6.67 and 5.39 dollars, respectively. But given repeated past guidance misses, it maintained its market-perform rating and 42-dollar price target.
The firm expects free cash flow of 2.6 billion dollars in fiscal 2027, an improvement from an outflow of approximately 7 billion dollars in fiscal 2026. But it expects an average of only about 1.7 billion dollars over fiscal 2027 to 2029; the average turns negative if fiscal 2026 is included, and cash flow remains volatile.
Mandatory convertible preferred shares currently require cash dividends of approximately 75 million dollars per quarter and are allocated approximately 15% of net income under the earnings-per-share calculation, reducing earnings attributable to common shareholders. These deductions will disappear upon conversion in June 2029, but approximately 131 million to 157 million additional common shares could be issued.