Super Micro Computer, Inc. (SMCI) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to Super Micro Computer, Inc’s Fiscal Fourth Quarter 2022 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Nicole Noutsios, Investor Relations, you may begin your conference.

Good afternoon. And thank you for attending Super Micro's call to discuss financial results for the fourth quarter, which ended June 30, 2022. With me today are Charles Liang, Founder, Chairman and Chief Executive Officer and Dave Weigand, Chief Financial Officer. By now, you should have received a copy of the news 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 on the Investor Relations section of the company's website under Events & Presentations tab. We have 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 and future business outlook, including guidance for the first quarter of fiscal year 2023 and the full year of 2023 and the potential impact of COVID-19 on the company’s business and results of operations. There are a number of risk factors that could cause Super Micro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our most recent 10-K filing for fiscal 2021 and our 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 the non-GAAP financial results and business outlook. For an explanation of our non-GAAP financial measures, please refer to the accompanying presentation to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today's press release and 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 to ask questions. I will now turn the call over to Charles.

Thank you, Nicole, and good afternoon, everyone. Today, I'm pleased to announce record year ended out with annual revenue surpassing milestone of 5.2 billion growing 46% year-over-year. We ended the year with another great quarter with fiscal Q4 2022 revenues of 1.64 billion growing 53% year-over-year, and 21% quarter-on-quarter, surpassing both top and bottom-line estimates. Our quarterly and year end results are above our guidance given three months ago and exceed our recently obtained range given several weeks ago. Our strong growth is fueled by recent run in design wins based on our rack scale total IT solutions, especially on GPU solutions and AI platforms. And I believe our solutions will continue to drive plenty of new design wins and accelerate our strong growth in the coming quarters and years. More customers are also recognizing and adopting the value of our green computing solutions, due to the rising environmental challenge and energy cost. The total solution strategy and green computing solution has resulted in our four consecutive quarters of growth at a minimum three times faster than competitors' growth story. Now, let's look at some of the key highlights from the year and quarter. First, our quarter 2022, revenue totaled 5.2 billion up 46% year-on-year above our guidance range of prior year. Our fiscal year non-GAAP earnings per share of $5.65 grew 128% year-over-year compared $2.48 a year ago which exceeded the higher end of our guidance range of $4.53 to $4.71. Our fiscal fourth quarter net revenue totaled $1.6 4 billion up 53% year-on-year and up 21% quarter-on-quarter above our guidance range of $1.4 billion to $1.48 billion. Our fiscal fourth quarter non-GAAP earnings per share tripled year-over-year and was $2.62 compared to $0.81 a year ago and was way above the high-end of our guidance range of $1.51 to $1.59 and pretty much now strong operating leverage and has more preference to our rack scale total IT solutions. With our total IT solutions experienced robust growth in USA this year. We will continue to gain even greater domestic attraction going forward. We will also expand our total IT solution to both Europe and Asia markets in the coming quarters and years. We are excited as of this generation opportunity to become a global leader of rack scale plug and play IT solutions. Our robust fiscal year results reinforced our competence in achieving the $10 billion in annual revenue target much sooner than we guide last year. And we are now preparing for our $20 billion mid-term mission that we discussed last quarter. Based on our current supply and capacity, at least at a midpoint of our guidance range. We are forecasting 1.57 billion in revenue for the upcoming September quarter. I'm also confident that our full fiscal 2023 revenue will be above the prior guidance range of 6 billion to 7 billion. We now expect revenue to be in the range of 6.2 billion to 7 billion with EPS at least at $7.50, following the macroeconomic conditions uncertainty, we are optimistic that some order supply chain and logistics issue will begin to subside. From a market perspective, we continue to see increasing demand for accelerating compute and AI platforms. We are meeting this demand at a both system and rack-scale level with our total IT solutions which are supported by our over 20 years of seasonal billing growth development. This billing growth products allow us to create highly optimized rack-scale plug and play direct single solutions for our customers with lower infrastructure cost and increase in significant TCO savings. Our total IT solution approach streamline design, dedication, solution and integration, resulting in a much shorter lead times for our customers which optimized quality and performance. Moreover, our total IT solution simplified integrated [indiscernible] control. In addition, our super cloud composer, orchestrator, security and other products can help only manage compute, acceleration, storage and network building products at cloud-enabled including rich analytics. Data center operator can easily leverage these information to [indiscernible] grow workload efficiency. So, we are expanding our investment in our data center management software stack that will enable to draw infrastructure as a service and secure monitoring as a service functionality for enhancing our total IT solution capability and value. This one stop shop approach we are aligned with emerging growth market across AI, machine learning, software defined storage, networking, public and hybrid cloud, and 5G, IoT and telco. We previously shared that we were certain that people in our community interface intelligent business automation, with new B2B B2C automation platform is being used and validated by more and more of our customer as we speak. These intelligent auto configurator will leverage our system building product methodology to carry out application optimized solutions to a much broader customer base. We expect that this tool will help tremendously grew our go-to-market initiatives, product design, operations, and service effectively. Most importantly, the automation process will considerably grow our customer base and improve customer satisfaction starting from pretty much this fiscal year. Our current manufacturing scale and capacity is a build to support between 10 billion to 12 billion in annual revenue as we continue to ramp up our next scale capabilities in our global facilities. During the June quarter, we shipped over 1000 plug and play rack, today -- in the September quarter, we have double our rack-scale capacity with enhanced features at our new building [indiscernible]. Our rack-scale capacity can be up to 6000 direct for quarter now. Our total development activities continue to grow strongly with close partnership with NVIDIA extending our GPU system product line including H100 very strong mix and very top product lines. Our early deployment programs with our upcoming Intel and AMD product lines are mostly ready just waiting for the new Intel and AMD processor to be available. Switching gear, we stay committed to lead the market in green computing solutions with our resource saving designs both to reduce environmental impact and of course our customers' operation. As we apply our green computing solutions at a rack-scale level, we can put in even better quality and time to market value to our customers. Higher energy costs and limitation on electricity usage will continue to strain many companies in the near future. We saw this dynamic and challenge since a decade ago, and we have been at the forefront with technology and solution that help customers go for higher temperature operation terra center, fully air cooling or liquid cooling. DNA of our customers achieved to getting TCO employee reduction in their data centers turn to 1.05 from the achieved evidence of 1.57 or even higher. By our calculations [indiscernible] adoption of our green computing solutions or other suppliers’ solution with similar energy visions will potentially save the IT industry more than $10 billion in electricity costs here or eliminating equivalent of more than 30 fossil fuel power plants equal to saving 8 billion trees of our planet. Personally, I’m very glad to see increased demand for energy efficient solutions for cost savings but more importantly, we must do this for our Mother Earth. Encouraging, we are focused on building and delivering much more greener rack-scale total IT solutions. From an industry perspective this is that greatest opportunity Super Micro has ever seen since our founding 29 years ago. Our year-over-year top and bottom-line performance is evidence that our total IT solution strategy is accelerating. I see our room to grow is at least another 4x in the coming years why we believe that our time will continue to expand with continued applications. We will continue to address these technology intersection by enhancing our total IT solutions, capability and capacity with the most software and we will continue to gain market share and extend it to new verticals, which increase our business scale and operating [Technical Difficulty]. My team and I will continue to escalate our growth strategies and accelerating the timeline to our 10 billion revenue target is short-term and $20 billion revenue in the future. I will now pass the call to Dave Weigand, our Chief Financial Officer to provide additional details of the quarter. Thanks.

Thank you, Charles. I'm pleased to report fiscal fourth quarter revenues of 1.64 billion or 53% year-on-year and 21% quarter-on-quarter increase. Our revenues exceeded our initial guidance range of 1.4 billion to 1.48 billion and our recently updated range of 1.58 billion to 1.63 billion. For fiscal year 22, we reported revenues of 5.2 billion representing 46% growth over fiscal year 21 revenues of 3.56 billion. Our growth initiatives are gaining momentum with our total IT solutions targeting fast growing markets and customers with accelerated GPU and AI workloads, software defined storage and networking, public and hybrid cloud and 5G Edge IoT platform. These new growth drivers complement our traditional strength, with enterprise channel and OEM customers, leading to accelerated revenue growth, expanding margins and operating leverage. In the fourth fiscal quarter Super Micro recorded balanced revenues across all three of our market verticals, demonstrating the resilient nature of our diversified end markets. We achieved 835 million in organic enterprise and channel and AI and revenues representing 51% of Q4 revenues versus 62% last quarter, up 24% year-over-year and flat quarter-over-quarter. The year-over-year growth in this segment was driven by our growing list of large enterprise customers and new product offerings. Our OEM appliance and large data center segments achieved 717 million in revenues representing 44% of Q4 revenues versus 32% last year, up 95% year-over-year and up 67% quarter-over-quarter with strong growth driven by large new and existing data center customers and OEM appliance customers. Our 5G telco edge IoT segment achieved 83 million in revenues representing 5% of Q4 revenue versus 6% last quarter and was up 172% year-over-year and down slightly by 4% quarter-over-quarter. For the full fiscal year 2022, our organic enterprising channel and AI and our revenues grew 40% to represent 61% of fiscal year 22 revenues. Our OEM appliance and large data center segment grew 44% and represent 32% of revenues. Our emerging 5G, telco edge and IoT segment grew 163% and represented 7% of total revenues. Our mix of complete systems and rack-scale total IT Solutions has been increasing steadily. Systems comprise 91% of total revenue and subsystem accessories represented 9% Q4 revenue. On a year-over-year basis and also on a quarter-over-quarter basis, the volume of systems and nodes shipped as well as system node ASP increased due to product and customer mix. We had a balanced distribution of Q4 revenues across geographies, with U.S. representing 66% of revenues, Asia 17%, Europe 14% and rest of the world 20%. On a year-on-year basis, U.S. revenues increased 65% as the gained market share with our advanced Rack-scale total IT solutions for emerging high growth server workloads. Asia increased 38%, Europe increased 21% and the rest of the world increased 8%. On a quarter-over-quarter basis, U.S. in revenues increased 41%, Asia decreased 9%, Europe increased 9% and the rest of the world 30%. In Q4 non-GAAP gross margin was 17.6% up 200 basis points quarter-over-quarter from Q3 and up 390 basis points year-on-year due to price discipline, lower freight costs, leverage from higher factor utilization, operating efficiencies and our continually improving product customer mix. While the supply chain disruptions achieved some success in controlling freight and other logistics costs through disciplined execution. Our Q4 gross margin was above the high-end of our long-term target model range of 14% to 17% and demonstrates the success of our new high value total IT solutions. Turning to operating expenses. Q4 OpEx on a GAAP basis increased slightly by 1% quarter-on-quarter and 15% year-on-year to 122 million. On a non-GAAP basis operating expenses increased 4% quarter-on-quarter and increased 15% year-on-year from 113.5 million. Our non-GAAP operating margin increased significantly to 10.7% for the quarter versus 7.5% last quarter and 4.4% a year ago, demonstrating both improvements in gross margin driven by new product and customer mix and operating leverage driven by higher revenue along with disciplined expense control. Our non-GAAP operating margin of 10.7% for Q4 was also above our target model range of 5% to 8%. Other income and expenses approximately $1 billion in income consisting of 4 million in foreign exchange gain offset by interest expense of 2.9 million as compared to 4.7 million in FX gain and 1.5 million in interest expense last quarter. Our interest expense increased sequentially as we utilize our short-term credit line before financing inventory and accounts receivable. We also experienced higher short-term interest rates on borrowings driven by recent fed-ex. This quarter the tax provision was 25.8 million on a GAAP basis 29.9 million on a non-GAAP basis. Our GAAP tax rate for Q4 was 15.5% and our non-GAAP tax rate was 17.1. Our GAAP and non-GAAP tax expenses increased higher levels of pre tax profit, but though the rates were lower sequentially. Lastly, our share of income from our JV was $0.3 million this quarter as compared to [Technical Difficulty] last quarter. We delivered strong Q4 non-GAAP diluted EPS of 262, which exceeded the high end of the original guidance range of 151 to 169 and our recently updated range of 230 to 240. The increases to EPS were due to a combination of higher revenues, higher gross margins from manufacturing efficiency, price discipline, product and customer mix and operating leverage. For the full fiscal year 2022, we reported non GAAP diluted EPS of $5.65 which was up 128% year-over-year versus fiscal 2021 non-GAAP diluted EPS of 248 and higher than our initial guidance of 471. Cash flow used in operations for Q4 was 25 million compared to cash flow used in operations of 228 million for Q3 due to our improved profitability, along with better management of our inventory and working capital. Despite the 21% quarter-over-quarter increase in revenues, trimmed our inventory by 3% quarter-over-quarter. Accounts receivable increased sequentially due to higher revenues, while accounts payable decreased sequentially due to the timing of payments to our vendors. Our CapEx was $11 million for Q4 bookings and negative free cash flow of 36 million versus negative free cash flow of 239 million last quarter. Our closing balance sheet cash position was 267 million while bank debt was 597 million, as we utilized our bank lines of credit for those higher revenues [Technical Difficulty] and accounts receivable as we ramped production of new design wins globally. As we look ahead to fiscal 2023, we expect that our continued growth in revenue and profitability together with improved working capital management leads to better operating and free cash flow. We're optimistic that some of the supply chain and logistic costs begin to stabilize. We remain confident in our long-term outlook for robust revenue growth and profitability driven by our leading-edge new platforms design win, market share gain and engagement with significant new global customers. We are announcing -- also attribute $200 million stock buyback program today [Technical Difficulty] through January 31, 1.4. Turning to the balance sheet and working capital metrics compared to last quarter, our Q4 cash conversion cycle was 100 days, versus 98 days in Q3 and above our target range of 85 to 90 Days. Days of inventory was 106 representing a decrease of 11 days versus the prior quarter of 117 that managed our inventory more efficiently. Day sales outstanding is up by three days quarter-on-quarter with 42 days, while days payable outstanding came down to [Technical Difficulty] by 10 days to 48 days. Now turning to the outlook for our business, we remain enthusiastic about design wins and plug and play flag sale total IT solutions ramping in multiple in markets. We're carefully watching the global macroeconomic situation, continuing supply chain disruptions for the first fiscal quarter 2023 ending September 30, 2022, we expect net sales in the range of 1.52 billion to 1.62 billion. GAAP diluted net income per share of $2.01 to $2.27 and non-GAAP diluted net income per share up to $2.07 to $2.32. We expect gross margins to be similar to Q4 levels. GAAP operating expenses are expected to be approximately 126 million and they include 8.6 million in stock-based compensation 1.5 million in other expenses that are not included in non-GAAP operating expenses. GAAP and non-GAAP operating expenses are expected to increase due to continued investment in R&D and higher personnel costs. We expect other income and expense, including interest expense to be a net expense of approximately 3.6 million and expect a nominal contribution from our joint venture. The company's projections for GAAP and non-GAAP diluted net income per share, assume a GAAP tax rate of 19.4%. Our non-GAAP tax rate of 20.3% and a fully diluted share count of 54.8 million for GAAP and 56.2 million shares for non-GAAP. We expect CapEx for the fiscal first quarter of 2023 be in the range of $6 billion to $8 billion. For the fiscal year 2023, ending June 30, 2023, we are giving guidance for revenues in a range of 6.2 billion to 7 billion. GAAP diluted net income per share of at least $7.27 and non-GAAP diluted net income per share of $7.50. The company's projections for GAAP annual net income procurement tax rate of 20.3 and a rate of 21.1 for non-GAAP net income. For fiscal year 23, we are assuming a fully diluted share count of 55.6 million shares for GAAP and 57 million shares for non-GAAP. The outlook for fiscal 2023 fully diluted, GAAP earnings per share includes approximately 35.4 million and expected stock-based compensation and other expenses net of tax effects that are excluded from non-GAAP net income per share. Now, Nicole, will turn it back to you..

Operator you can open the line up for questions.

[Operator Instructions] Your first question comes from Nehal Chokshi with Northland Capital Markets. Your line is open.

Congratulations on amazing results. Amazing guidance clearly showing sustainable share gains story here. Let's talk about the gross margin, I think this is the first time I've heard Super Micro talk about better prices as a driver of gross margin expansion, which is great, but can you delve into why do you believe your existing prices for now versus in the past?

Okay. So I missed just a little bit of what you said Nehal. You said what was the question?

I believe, this is the first time I've heard you guys talk about price discipline being a driver of gross margin expansion. And so I'd like to understand why is that happening now?

Okay. Got you. So, we have -- it took us some time to adjust to the rising freight costs and another component costs and so we managed to adjust those properly. And then, we also got some tailwind from finally from freight costs coming down 20% in q4. So those two things combined allowed us to have a higher gross margin.

Essentially our scale -- building scale continue to grow and we maintain a very good product line and also when building scale growth, yes, we will have a higher gross margin and net margin.

Got it. Great. And then, can you give a little bit more detail on the driver of the -- strength in the quarter which was leading edge vertical solutions and OEM appliance in large data center segments?

Yes. Recently we have indeed handled four of really a good product win including most of them indeed high-end AI platform. So our AI platform continue to gain market share and especially rack-scale plug and play. We have a complete rack install customer so it's makes customers job much easier. And most of it and see what rack just starting to power cable then there are cable and then ready to run. So that really attract some customers.

What about within the OEM side? Was the driver there on OEM side?

[indiscernible] indeed it's pretty much our standard product. Our standard product for customer, we want some really top 10 highest value company around the world.

Okay, great. And then finally, what are your expectations for cash conversion cycle is the semi cycle appears to be entering a down cycle now?

Well, we expect our cash conversion cycle to come down Nehal, for a couple of reasons. Number one, our profitability has been increasing. And secondly, we've been able to manage our inventories better. So and the reason for that is in Q3, we were building inventory as we were getting ready to start the launch of some design wins. And those design wins really, really got traction and that allowed us to kind of even out our inventory. So we expect our cash flow and cash conversion cycle to improve.

Great, congratulations.

Your next question comes from the line of Ananda Baruah with Loop Capital. Your line is open.

Hey, good afternoon, guys. Yes, thanks for taking the question. And congrats on strong results and very solid execution. Thanks. Congrats on that. So I guess a few if I could. Kind of piggybacking of Nehal's question, like in a bigger picture context, are there any other kinds of key aspects of what you guys seeing going on this leading to the ongoing acceleration in revenue generation? And I guess, Charles, is it all share gain? Are there other things that you guys are seeing that's been leaving the last couple quarters to the accelerated revenue generation run rate?

Thank you. Indeed, we start to our folks on rack-scale total solution, rack-scale plug and play since the last three years ago, so it gets to the point where [indiscernible] to make an order, how do we and sort of where, from where people were chained. So now we start again started remodeling more deal, especially top 10 or top 30 highest [indiscernible] country around the world. So if we are very comfortable, we were convenient again, to win more in AI high-end platform and total solution, including storage, including switch, the kind of complete [indiscernible] or using rack-scale plug and play solution?

Hey, got it, I got it. So it sounds like it sounds like a big component in this share, and it is really continuing to resonate in the marketplace. Both of the total solutions and what you're able to actually provide to the customer with that total solution. So it sounds like it's just easier to use, and it's stronger product, those two things combined. And yes, I would just say, are you seeing parts of the marquee aspects of your end markets actually accelerate? Well, I guess I'd love to know, like, what's your opinion on kind of the tenor of demand in your key areas kind of the last 90 days versus the prior 90 days? It seems like you've actually seen some acceleration as the state from just shared gain. But how would you guys characterize that particularly in the macro backdrop?

Yes, actually you may know, I mean, AI, deep learning, being compared to grow, including metaverse, lots of customer, lots of company continuing to invest heavily in those areas. And it's for now we have -- I would like to say exactly that pace for AI platform around the world, doesn't matter, really high end, or all kinds of high volume platform enabled or rack-scale enabled or cloud enabled. So our investment in that three start to gain customers attention as we save their big time especially, most of the time in the industry, people take them maybe two miles to three miles to finish shipping, a rack scale, cluster, and it takes us much shorter, because we optimize the inventory and total solution and ship it to customer with a much shorter lead times and customer really appreciate that as well.

Sorry, no, I don't want to cut you off. That's great content Charles. I'll see [indiscernible] for now. Thanks. Appreciate it.

Your next question comes from Jon Tanwanteng with CJS Securities. Your line is open.

Hi, guys. Thanks for taking my questions. Can you hear me?

Yes, Jon.

Okay, great. The gross margins about 17%, the high-end of your range, is that sustainable over this year? And do you think that you should be changing your long-term target range a bit?

The answer is, yes, it is sustainable. And we will be reviewing our new target levels. But it's really, as Charles mentioned, we've had a lot of customers come to us, and we've design very special solutions for them. And these solutions have a value. And they're high value to the industry and to our customers. And so we are -- when I say price discipline, and we've realized, higher value for some of our solutions. And we've had the good fortune of being able to secure enough supply to start to ramp up of those solutions.

That's great news. Thanks. And then, do you see any indications of your customers being impacted by recessionary pressures at all? And maybe go along with that what assumptions, if any, are in your guidance regarding macroeconomic or geopolitical risk?

It depends. Some customers, we saw them slow down, but not for other customer, indeed, continue to increase their demand, especially for high-end AI platform for those future products. And, by the way, I mean, there a lot of new technology, coming out quarter-out-quarter or month-after-month. So at this moment, we believe our macro economy may slow down at ADP, but our demand should continue growing.

Okay, great. And the guidance that you gave for the next quarter that sequential decline at the midpoint? Is that more indication of just seasonality or supply? Or is it maybe more of this macro slowdown that maybe some of your customers are seeing?

Two reasons, one is supply chain. We still facing some supply chain constraints. Some parts have been more available than before last year, lots of past year in shortage that's one thing. Second thing, in our September quarter used to be our slow season. So both reason, and that's why we tried to be more conservative.

Okay, understood. And last one if I may, just when do you need to think about investing in new capacity. I know you guys have up to 10 billion to 12 billion in your current facilities, but at your current growth rate, you probably have to start thinking about it pretty soon. So I was just wondering what your plans are, if you need to get there. And where you might start investing if you need to do so?

In addition to that, because we [indiscernible] really global market yet, we are very strong in some countries, some territory, but in other countries, we are still pretty mean. So our solution is able to grow with much higher scale. We just need more warehouse, more production, making power and then we can achieve a more productive customer as far as how we, are far away from where product assumption has been ready. And we haven't replicated the end market to more countries and we already are a premium product.

Okay, great. Thanks, guys. And again, congrats on a fantastic quarter.

[Operator Instructions] Your next question comes from Ananda Baruah with Loop Capital. Your line is open.

Oh, God. Thanks, guys. I appreciate it. I just love to get a little more context on the mix dynamic. Charles that you guys you talked about in his remarks, it sounds like meaningful aspects of the mix is a total solution. Are there any other components of mix that we should be aware of and contributing to that dynamic? Or is it primarily the total solutions that are resonating increasingly?

Very good question. Indeed, that's why we start to prepare, rack-scale plug and play about three years ago. So it took us -- acquired a lot of April to train our people to make it or facility or components ready, especially a street communication networking device. And finally every single ad we start to gain more customer, gain more design win. I believe those design wins will continue and at this moment, I feel pretty positive in the continued growth in those areas.

That's really awesome. And are there any particular verticals that those rack scales tend to go into or targeted at more, or that they'll resonate with more or just sort of across all your verticals? Do you think the rack scale has a real place?

AI, people learning, metaverse, omniverse and at the beginning, high end gaming, automation, scientific application. So it is a local area, even kind of lack of forecasting company, also having some strong demand.

That's super helpful context as always. Just, I guess, just let me up to two last quick ones here. Sounds like the backlog probably grew again, over the last 90 days, given your comment around constraints. Is that accurate?

Yes, because, they are not [indiscernible]. And that's why we keep in our inventory, so that we can support a continual growth demand. Basically, our image here is pretty healthy. We have some high volume inventory, but they are under strong demand. So like, at this moment, I don't worry about inventory level.

Great. And then last one for me, guys. Is Charles, just an update on Taiwan? How would you characterize the utilization level there now?

It’s growing faster. But we always suffering supply chain shortage in that nine months, already. So I hope the supply chain will continue to get better. And once that happen, I reckon Taiwan can be much improved. At the moment, I believe our evaluation rate in Taiwan, only about 45% or so.

And so Dave? Dave, sort of 40 -- let's say 45% utilization. Does that mean when you guys get to sort of normalized utilization, which is still expected, Dave, what was it like 150 to a [indiscernible] before it's a gross margin contribution on top of where you guys are right now?

From their shipments. Yes, that's right. We said 100 to 200 from Taiwan.

So 100 to 200 from Taiwan not 100 to 200. So it's not 100 to 200 to the overall P&L, it's 100 to 200...

That's correct. Yes.

Got you. Now Taiwan is going to be approaching half year volume at some point. So would that sort of be long-term 50 to 100 basis points to the overall P&L.

That's a fair way of looking at it.

Okay, awesome. Thank you, guys. Appreciate it.

There are no further questions at this time. This does conclude today's conference call. Thank you for joining. You may now disconnect.