Super Micro Computer (NASDAQ:SMCI) latest earnings report presents mixed implications for Dell Technologies (NYSE:DELL), according to a recent note from Citi analysts.
The investment bank's note highlights strong demand for AI servers but raises concerns about margin degradation, which could impact Dell.
Supermicro reported revenues of $5.31 billion for the quarter, within their guidance range of $5.1-$5.5 billion but slightly below consensus estimates of $5.32 billion.
Management attributed the revenue performance to $800 million that shifted into July due to component shortages related to Direct-Liquid-Cooling (DLC). The mid-point revenue guidance for Q1 2025 at $6.5 billion (+22% quarter-over-quarter, +207% year-over-year) and FY 2025 at $28 billion (+87% year-over-year) suggests robust demand will persist, supported by a high backlog.
Citi notes that despite the strong revenue outlook, Supermicro's gross margin fell short, coming in at 11.2%, below their target range of 11-14% and the FactSet expectation of 14.1%.
Furthermore, Citi explains in its note that the company cited a higher mix of hyperscaler customers and the ramping of DLC technologies as contributing factors. Management anticipates Q1 gross margin to improve to around 12% with sequential improvements expected to return to the 14-17% target range by the end of FY 2025, driven by manufacturing efficiencies and maturing DLC technologies.
The investment bank believes that for Dell, these results imply positive momentum in AI server demand, which is a key area of growth. However, they note the margin concerns observed at Supermicro could present an overhang for Dell, which has guided for improving ISG (Infrastructure Solutions Group) margins from Q1's approximately 8% through the end of CY 2024/FY 2025.
Overall, Citi's note underscores the dual-edged nature of Supermicro's results for Dell, combining optimistic demand signals with cautionary margin pressures.