SMCI 10-K & 10-Q changes, risk factors and insider trading
Super Micro Computer, Inc. (also SMCIP) · Nasdaq · Electronic Computers · CIK 1375365 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Climate change may have a long-term impact on our business.”
New heading “We were delinquent in certain SEC reporting obligations in prior fiscal years, which may increase the risk of SEC enforcement actions, damage investor confidence, and require significant resources to correct. We have since implemented enhanced compliance controls to prevent recurrence.”
New heading “We previously identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. We are implementing measures to remediate these material weaknesses.”
New heading “Our operating results may be adversely impacted by additional tax liabilities, higher than expected tax rates, changes in tax laws, and other tax-related factors.”
Removed heading “Risks Related to Previously being Delinquent in SEC Reporting Obligations”
Removed heading “Risks Related to Previous Delinquent SEC Reporting Obligations”
Removed heading “We face risks related to previously being delinquent in our SEC reporting obligations.”
Removed heading “We have incurred and expect to continue to incur significant expenses related to the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report and the remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation.”
Removed heading “Matters relating to or arising from the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition.”
Removed heading “We have identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.”
Removed heading “Changes in U.S. or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control may adversely impact our business and operating results.”
Removed heading “Our future effective income tax rates could be affected by changes in the relative mix of our operations, our relative income among different geographic regions and domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows.”
Removed heading “Our products may not be viewed as supporting climate change mitigation in the IT sector.”
Removed heading “Expectations and evolving laws and regulations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.”
Largest changes
“We have been, are currently, and may in the future be subject to various lawsuits, stockholder derivative actions, class action lawsuits, individual or mass arbitration proceedings, and other types of legal proceedings, as well as other disputes, claims, and regulatory or governmental inquiries and investigations, including with regard to contract or commercial disputes, consumer protection, privacy, data protection, intellectual property, tax, employment, and corporate governance, among other matters. In addition, the circumstances underlying the matters discussed in Item 9. …”see in full comparison
“If we fail to meet our contractual commitments or otherwise fail to comply with our contractual obligations, then we could be subject to breach of contract or other claims. Any claims, proceedings, individual or mass arbitration demands, or inquiries or investigations initiated by or against us, whether successful or not, may be time-consuming, subject us to damage awards, regulatory orders, consent decrees, injunctive relief, fines, or other penalties or sanctions, require us to change our policies or practices, result in increased operating costs, divert management’s attention, harm our repu …”see in full comparison
“Like other companies, we are subject to ongoing attempts by malicious actors, including through hacking, malware, ransomware, denial-of-service attacks, social engineering, exploitation of internet-connected devices, and other attacks, to obtain unauthorized access to, acquire or misuse confidential information, or to disrupt service reliability and threaten the confidentiality, integrity and availability of our systems and information we process. …”see in full comparison
“The Company also received a grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York seeking documents and information relating to the individuals and facts referenced in the Indictment, as well as the Company’s compliance program and internal controls, and related issues. The Company has also received other subpoenas, and inquiries from the Department of Justice, the Office of Export Enforcement (“OEE”) of BIS, as well as foreign authorities requesting documents and information relating to certain other customers. …”see in full comparison
“For example, we have received multiple subpoenas from the OEE of BIS (the “BIS Inquiries”), including at least two subpoenas and one informal request relating to a certain customer implicated by the facts and circumstances that are also the subject of the Indictment. The BIS Inquiries seek documents relating to our business, customers, products, transactions and export compliance practices. We cannot predict the scope, duration or outcome of the BIS Inquiries, and additional subpoenas, civil investigative demands or other requests may be issued. …”see in full comparison
“In connection with the indictment of three former associates, the Company completed an independent investigation, which was jointly led by our Lead Independent Director and the Chair of the Board’s Audit Committee. The independent investigation was conducted by Munger, Tolles & Olson LLP, and it engaged AlixPartners LLP as an independent forensic accounting consultant (collectively, the law firm and the accounting consultant are referred to as the “Independent Advisors”). The results of the investigation were reported to the entire Board. …”see in full comparison
Full comparison: every changed paragraph (161)
Our business involves significant risks, some of which are described below. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our business, financial condition, results of operations, cash flows, other key metrics and the trading price of our common stock. You should carefully consider the risks and uncertainties described below, together with all the other information in this Annual Report, including “Management’sLegal Proceedings,” “Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations,” “Quantitative and Qualitative Disclosures About Market Risk,” “Controls and Procedures” and the consolidated financial statements and the related notes. If any of the following risks actually occurs, our business, reputation, financial condition, results of operations, revenue, and future prospects could be seriously harmed. In addition, you should consider the interrelationship and compounding effects of two or more risks occurring simultaneously. Unless otherwise indicated, references to our business being harmed in these risk factors will include harm to our business, reputation, financial condition, results of operations, revenue, and future prospects. In that event, the market price of our common stock could decline, and you could lose part or all of your investment. You should not interpret our disclosure of any of the following risks to imply that such risks have not already materialized.
Risks Related to Previously being Delinquent in SEC Reporting Obligations
•We face risks related to previously being delinquent in our SEC reporting obligations;
•We have incurred and expect to continue to incur significant expenses related to the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” section in this Annual Report, the remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures discussed in Item 9A. “Controls and Procedures” of this Annual Report, and any resulting litigation;
•Matters relating to or arising from the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” section in this Annual Report, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition;
•We have identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.
•Our sales are concentrated in a few large customers.customers, Ifand if we lose or experience a significant reduction in sales to any ofkey thesecustomer, or any key customers,customer if any of these key customers experienceexperiences a significant decline in market share, or if any of these customers experience significant financial difficulties, our revenue may decrease substantially and our results of operations and financial condition may be harmed;
•We may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growthgrowth, and any financing that we do obtain may dilute our stockholders, restrict our growth, or contain other unfavorable terms;
•Changes in U.S. or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control may adversely impact our business and operating results;
•Any failure, disruption or security breach or incident of or impacting our information technology infrastructure or information management systems could have an adverse impact on our business and operations;
SMCI | 2025 Form 10-K | 11
•We are subject to order and shipment uncertainties. If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin. Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet demand, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships;
•The AI industry has driven a significant portion of our recent success. The AI industry involves significant risks and uncertainties, and the use of AI by our workforce may present risks to our business;
SMCI | 2026 Form 10-K | 12
•Climate change may have a long-term impact on our business;
•We were delinquent in certain SEC reporting obligations in prior fiscal years, which may increase the risk of SEC enforcement actions, damage investor confidence, and require significant resources to correct. We have since implemented enhanced compliance controls to prevent recurrence;
•We previously identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner. We are implementing measures to remediate these material weaknesses.
•Our operationsWe are impactedsubject byto complex laws, rulesrules, regulations, and regulations related to export control to which our business is subject, and rapid changes in such laws, rules, and regulations as well as political and other actionsactions, relatedincluding theretorestrictions on the export of our products, which may adversely impact our business;
•Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change and may adversely impact our business and operating results;
•Provisions of our certificate of incorporation and bylaws and Delaware law and provisions in our governing documents could discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock;
•The concentration of our capital stock ownership withmay insiders likely limitslimit your ability to influence corporate matters.
•Provisions in theour 2029 Convertible Notes Indenture, the 2028 Convertible Notes Indenture, and the 2030 Convertible Notes IndentureIndenture, couldthe delayconversion of our Mandatory Convertible Preferred Stock or preventDepositary anShares, otherwiseor beneficialthe takeoverpayment of us,dividends on Mandatory Convertible Preferred Stock in shares of common stock, may dilute the ownership interest of our existing stockholders or may otherwise depress the price of our common stock;
•Our operating results may be adversely impacted by additional tax liabilities, higher than expected tax rates, changes in tax laws, and other tax-related factors;
•Our future effective income tax rates could be affected by changes in the relative mix of our operations, our relative income among different geographic regions, and domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows;
•We do not expect to pay any cash dividends in the foreseeable future.future, except for the 7.00% dividend on our Mandatory Convertible Preferred Stock.
SMCI | 2025 Form 10-K | 12
General Risks
•Our products may not be viewed as supporting climate change mitigation in the IT sector;
•Expectations and evolving laws and regulations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.
Risks Related to Previous Delinquent SEC Reporting Obligations
We face risks related to previously being delinquent in our SEC reporting obligations.
Due to the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report, our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 (“FY2024 10-K”), and our Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2024 and December 31, 2024 (the “Delinquent Reports”) were delinquent.
While we filed all of the Delinquent Reports within the extension period granted by Nasdaq, we expect to continue to face many of the risks and challenges related to previously being delinquent in our SEC reporting obligations, including the following:
We have incurred and expect to continue to incur significant expenses related to the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report and the remediation of deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation.
We have devoted and expect to continue to devote substantial internal and external resources towards remediation efforts relating to the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report, and management’s review of the circumstances and processes that led to those circumstances. As a result of these efforts, we have incurred and expect that we will continue to incur significant incremental fees and expenses for additional accounting, financial and other consulting and professional services.
Matters relating to or arising from the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report, including adverse publicity and potential concerns from our customers, have had and could continue to have an adverse effect on our business and financial condition.
We have been and could continue to be the subject of negative publicity focused on the matters underlying the circumstances discussed in Item 9. “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” of this Annual Report. We may be adversely impacted by negative reactions to this publicity from our customers or others with whom we do business, who may have concerns including the time and effort required to address our accounting and control environment and our ability to be a long-term provider to our customers. The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition.
SMCI | 2025 Form 10-K | 13
We have identified material weaknesses in our internal control over financial reporting, which could, if not remediated, adversely affect our ability to report our financial condition and results of operations in a timely and accurate manner.
We have concluded that our internal control over financial reporting was not effective as of June 30, 2025 due to the existence of material weaknesses in such controls, and we have also concluded that our disclosure controls and procedures were not effective as of June 30, 2025 due to material weaknesses in our internal control over financial reporting, all as described in Part II, Item 9A, “Controls and Procedures” of this Annual Report. While we have initiated remediation measures to address the identified material weaknesses, we cannot provide assurance that our remediation efforts will be adequate to allow us to conclude that such controls will be effective in the future. We also cannot assure you that additional material weaknesses in our internal control over financial reporting will not arise or be identified in the future. We intend to continue our control remediation activities and to continue to improve our overall control environment and our operational, information technology, financial systems, and infrastructure procedures and controls, as well as to continue to train and develop our personnel who are essential to effective internal controls. In doing so, we will continue to incur expenses and expend management time on compliance-related issues. If we are unable to successfully complete our remediation efforts in a timely manner and are, therefore, not able to favorably assess the effectiveness of our internal control over financial reporting, this could further cause investors to lose confidence, and our operating results, financial position, ability to accurately report our financial results and timely file our SEC reports, and stock price could be adversely affected.
SMCI | 2026 Form 10-K | 13
SMCI | 2025 Form 10-K | 14
Moreover, customers may hesitate to purchase, or not continue to purchase, our products due to ongoing reputational harm, negative publicity or other concerns related to our previously late filings of our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 and Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2024 and December 31, 2024 (together the “Delinquent Reports.Reports”). Any of these factors could prevent us from achieving our anticipated financial results. For example, we have granted and may continue to grant extended payment terms to some customers, particularly during macroeconomic downturns, which could impact our ability to collect payment. Our vendors have requested and may continue to ask for shorter payment terms, which may impact our cash flow generation. These arrangements reduce the cash we have available for general business operations. In addition, the pace of growth in our operating expenses and investments may lag our revenue growth, creating volatility or periods where profitability levels may not be sustainable. Failure to meet our expectations or the expectations of our investors or security analysts is likely to cause our stock price to decline, as it has in the past, or substantial price volatility.
Our sales are concentrated in a few large customers.customers, Ifand if we lose or experience a significant reduction in sales to any ofkey thesecustomer, or any key customers,customer if any of these key customers experienceexperiences a significant decline in market share,share or if any of these customers experienceor, significant financial difficulties, our revenue may decrease substantially and our results of operations and financial condition may be harmed.
We have become increasingly dependent upon larger sales to grow our business. In recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs. We had one customer account for 10% or more of our net sales in fiscal year 2026, four customers account for 10% or more of our net sales in fiscal yearsyear 20252025, and one customer account for 10% or more of our net sales in fiscal 2024, while we had no single customer account for 10% or more of net sales in fiscal year 2023.2024. We anticipate we may continue to have customers account for 10% or more of net sales in the future, and any subsequent loss of such customers could have a material adverse effect on our business and results of operations. If customers buy our products in greater volumes and their business becomes a larger percentage of our net sales, we may grow increasingly dependent on those customers to maintain our growth. If our largest customers do not purchase our products, or we are unable to supply such customers with products, at the levels, in the timeframes or within the geographies that we expect, including as a result of a global economic downturn, excessive credit risk, or a desire by such customers to limit their dependency upon us as a supplier, our ability to maintain or grow our net sales will be adversely affected.
Additionally, as we and our partners focus increasingly on selling to larger customers and attracting larger orders, we expect greater costs of sales. Our sales cycle may become longer, and more expensive, as larger customers typically spend more time negotiating contracts than smaller customers. Such larger orders may require greater commitments of working capital, which may require increased borrowings under our credit facilities to fund purchases of key components (such as CPUs, memory, solid-state drives ("SSDs") and GPUs) necessary for such orders, which could adversely affect our cash flow and expose us to the risk of holding excess and obsolete inventory, if there are delays or cancellations. Furthermore, larger customers also often seek greater levels of support in the implementation and use of our server solutions. An actual or perceived inability to meet customer support demands may adversely affect our relationship with such customers, which may affect the likelihood of future purchases of our products. Larger customers may also request larger amounts of credit or longer payment terms, which, if granted, increases our risks in the event customers do not pay or make timely payment, which risk is exacerbated in the event our payment terms with major suppliers of necessary components for such orders do not match the payment terms of our customers.
We may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth.growth, and any financing that we do obtain may dilute our stockholders, restrict our growth, or contain other unfavorable terms.
We had net income of $1,048.9$2,230.5 million, $1,152.7$1,048.9 million, and $640.0$1,152.7 million in fiscal years 2026, 2025, 2024, and 2023,2024, respectively. During fiscal year 2025, we issued $700.0 million aggregate principal amount of our 2028 Convertible Notes in a private placement, and we issued $2.3 billion aggregate principal amount of our 2030 Convertible Notes in a private placement. OurDuring fiscal year 2026, we entered into a credit agreement with JP Morgan for a Revolving Credit Facility of $2,000.0 million. In addition, during fiscal year 2026, our Taiwan subsidiary, where we maintain significant operations, also increased theirits lines of credit, or entered into new lines of credit, with various commercial banks in Taiwan.Taiwan, including also entering into a credit agreement with CTBC Bank Co., Ltd. (“CTBC”) which provides for two revolving credit facilities totaling $1,765.0 million.
We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilitiesequivalents and internally generated cash flows that we expect to generate will be sufficient to support our operating businesses and maturing debt and interest payments for the 12 months following the issuance of the financial statements included in this Annual Report. Nevertheless, we intend to continue to grow our business, which could require additional capital. We may need to further expand our credit facilities, enter into new credit facilities or engage in additional equity, debt or other type of financings to secure additional capital to continue or increase our rate of growth. If we raise additional capital through additional future issuances of equity or equity-linked securities, our existing stockholders could suffer significant dilution, and any new equity securities we may issue could have rights, preferences and privileges superior to those holders of our common stock. Any credit facility or debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which could make it more difficult for us to raise additional capital and to pursue our growth strategies. If we are unable to secure additional funding on favorable terms, or at all, when we seek it, we may not be able to continue the rate of our growth. In addition, no assurances can be given that in the event that we secure such financing that the proceeds thereof will be used effectively or result in growth.
Changes in U.S. or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control may adversely impact our business and operating results.
Our business is subject to risks generally associated with doing business abroad, such as U.S. and foreign governmental regulation in the countries in which we operate and the countries in which our contract manufacturers, component suppliers, and other business partners are located. Our operations and performance depend significantly on global, regional, and U.S. economic and geopolitical conditions. For example, tensions between the United States and China have led to the United States’ imposition of a series of tariffs, sanctions, and other restrictions on imports from China and sourcing from certain Chinese persons or entities, as well as other business restrictions. The U.S. government has recently imposed tariffs on certain foreign goods, and some foreign governments have threatened or instituted retaliatory tariffs on certain U.S. goods and have indicated a willingness to impose additional tariffs on U.S. products, which could increase tensions and create greater uncertainty in our business dealings. Further, such actions by the U.S. could result in other retaliatory actions by those countries which could impact our ability to profitably commercialize our products in those jurisdictions. Several countries are considering or have implemented tariffs or other trade barriers or restrictions, as well as other measures affecting cross-border commerce and the flow of information, which could have broad economic consequences, impact global supply chains and negatively affect our business, customers and partners.
SMCI | 2025 Form 10-K | 18
Global events may present challenges and risks to us. For example, the crises in Eastern Europe and the Middle East continue to pose challenges to global companies, including us, which have customers in the impacted regions. The U.S. and other global governments have placed restrictions on how companies may transact with businesses in these regions, particularly Russia, Belarus and restricted areas in Ukraine. Because of these restrictions and the growing logistical and other challenges, we have paused sales to Russia, Belarus and the restricted areas in Ukraine. This decision, which is in line with the approach of other global technology companies, helps us comply with our obligations under the various requirements in the U.S. and around the world. While it is difficult to estimate the impact on our business and financial position of both (i) our pause in sales to Russia, Belarus and the restricted areas in Ukraine and the current or future sanctions and (ii) tensions in the Taiwan strait, our pause in sales and these sanctions and continuing rising tensions could have adverse impacts on us in future periods, although they have not been material to date. For example, with respect to Russia, Belarus and the restricted areas in Ukraine, we did not, prior to the imposition of restrictions, make a material portion of our sales or acquire a material portion of our parts or components directly from impacted regions; however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions. Supply disruptions may make it harder for them to find favorable pricing and reliable sources for materials they need, which may put further upward pressure on their costs and increasing the risks that our costs may increase and that it may be more difficult, or we may be unable, to acquire materials needed. In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expenses. In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S. and other global governments, would not have a material adverse effect on our business, results of operations and financial condition.
Our business depends on the overall demand for accelerated compute platforms. Global financial developments and downturns, even if not directly unrelated to us or our industry, may adversely harm us. If economic conditions, including inflation, increased interest rates, economic output and currency exchange rates, in these markets and other key potential markets for our Total IT Solutions remain uncertain or deteriorate, including as a result of a downturn in the global economy, regional conflicts, tariffs, trade restrictions, or other reasons, customers may delay or reduce their spending. General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments. Furthermore, weakness and uncertainty in worldwide credit markets may harm our customers’ available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions. If our customers or potential customers experience economic hardship, this could reduce the demand for our Total IT Solutions, delay and lengthen sales cycles, increase requests for customer credit which may increase our risks in the event customers do not pay or make timely payment, lower prices for our Total IT Solutions, and lead to slower growth or even a decline in our revenues, operating results and cash flows.
While recently moderating, inflation in the U.S. had increased to a rate not seen in several decades. A recurrence of high inflation may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending, and volatility in financial markets. In response to inflation, the Federal Reserve has significantly raised, and may again raise, interest rates, which may increase our own borrowing costs, limit our clients’ access to debt financing, and reduce technology expenditures and demand for our Total IT Solutions.
These and other geopolitical tensions, political or economic uncertainty can disrupt supply chains and increase the cost of our and our partners’ products, and have a negative impact on consumer confidence, which could impair our future growth and adversely affect our international operations, business, financial condition, and results of operations.
Any failure, disruption or security breach or incident of or impacting our information technologyIT infrastructure or information management systems could have an adverse impact on our business and operations.
Our business depends significantly on effective and efficient information management systems, and the reliability and security of our information technologyIT infrastructure are essential to the operation, health and expansion of our business. For example, the information gathered and processed by our information management systems assists us in managing our supply chain, financial reporting, monitoring customer accounts, and protecting our proprietary and confidential business information, plans, trade secrets, and intellectual property, among other things. In addition, these systems may contain personal data or other confidential or otherwise protected information about our employees, our customers’ employees, or other business partners. We must continue to expand and update this infrastructure in response to our changing requirements as well as evolving security standards and risks.
SMCI | 2025 Form 10-K | 19
In some cases, we may rely upon third-party providers of hosting, support and other services to meet our information technologyIT requirements. Any failure to manage, expand and update our information technologyIT infrastructure, including our enterprise resource planning ("ERP") system and other applications, any failure in the extension implementation or operation of this infrastructure, or any failure by our hosting and support partners or other third-party service providers in the performance of their services could materially harm our business. In addition, we have partnered with third parties to support our information technologyIT systems and to help design, build, test, implement and maintain our information management systems.
Management's Discussion & Analysis (MD&A)
New heading “Share of (Loss) Income from Equity Investees, Net of Taxes”
Removed heading “Net Sales by Product Type”
Removed heading “Share of Income (Loss) from Equity Investee, Net of Taxes”
Largest changes
“The $6,614.3 million or 51.2% year-over-year increase in cost of sales was primarily attributed to an increase of $6,353.2 million or 50.6% in costs of components, materials, and contract manufacturing expenses primarily due to increases in shipments of GPU servers, HPC, and rack-scale solutions which have higher costs and a $86.5 million or 493.6% increase in tariff expense related to new trade policies enacted during the year, a $149.6 million or 179.2% increase in inventory write-down adjustments from aged inventory, a $67.9 million or 28.6% increase in overhead costs which includes higher …”see in full comparison
“The increase in Other income, net of $19.1 million was driven by an increase of $26.1 million in interest income due to higher balances held in interest-bearing deposit accounts during the year, and an increase in foreign currency exchange gain of $6.1 million due to a strong US dollar, offset by a $13.1 million investment and impairment loss in equity securities. The increase in interest expense of $8.9 million was due to higher borrowing and higher interest rates on our outstanding line of credit and term loan balances.”see in full comparison
“The year-over-year increase in cost of sales was primarily attributed to an increase of $7,006.7 million in costs of components, materials and contract manufacturing expenses primarily related to the increase in shipments of GPU servers, HPC, and rack scale solutions which have higher costs, a $52.3 million increase in inventory write-down adjustments, a $19.6 million increase in overhead costs which includes labor costs attributed to increase of operation activities and a $8.7 million increase in freight charges.”see in full comparison
“General and administrative expenses. The $65.8 million or 24.6% year-over-year increase in general and administrative expenses was primarily driven by an increase in legal and internal investigation-related expenses of $31.7 million or 98.4%, and an increase in employee-related costs of $14.5 million or 10.6%, mainly comprised of a $8.4 million or 10.4% increase in salaries and benefits, and a $6.1 million or 10.8% increase in stock-based compensation, due to stock awards granted related to hiring and retention of key talent. …”see in full comparison
“General and administrative expenses. The year-over-year increase in general and administrative expenses was primarily driven by a $74.0 million or 241.0% increase in professional and service fees, reflecting higher costs for external accounting, audit, tax, legal, and advisory services, primarily driven by the Special Committee investigation and the delay in filing our Annual Report on Form 10-K for fiscal year 2024. These services were necessary to support enhancements in our external reporting processes and compliance activities during fiscal year ended 2025. …”see in full comparison
Full comparison: every changed paragraph (119)
We are a global leader in Application-Optimized Total IT Solutions. Founded and operating in San Jose, California, we are committed to delivering first-to-market innovation for Enterprise, Cloud, AI, and 5G Telco/Edge IT Infrastructure. As a Total IT Solutions manufacturer, our offerings include server, artificial intelligence (“AI”) systems, storage, IoT devices, switches, software, and support services. Supermicro's expertise in motherboard, power, and chassis design expertise drives our ability to develop and produce next-generation innovations, from cloud to edge, for our global customers. Our products are designed and manufactured in-house across facilities in the United States, Taiwan, and the Netherlands. Leveraging our global operations for scale and efficiency, we optimize solutions to improve TCO while reducing environmental impact through Green Computing initiatives. Our award-winning portfolio of Server Building Block Solutions empowers customers to tailor systems precisely to their exact workloads and applications. By selecting from a broad family of flexible and reusable building blocks, customers can configure a comprehensive range of form factors, processors, memory, GPUs, storage, networking, power, and cooling solutions, including air-conditioned, free air, and liquid cooling solutions.
In order to increase our sales and profits, we believe that we must continue to develop flexible application optimized server and storage solutions while being among the first to market with new features and products. Our focus is on delivering Total IT Solutions that integrate, validate, and deliver server, storage, networking and software at the rack and cluster (multi-rack) level. Additionally, we will continue to expand our software offerings and enhance customer service and support, particularly as we increase our focus on large enterprise and data center customers. A key component of our strategy is our DCBBS, which significantly reduces data center build time and enables full integration of AI computing, server, storage, networking, rack, cabling, liquid cooling, end-to-end management software, onsite deployment services, and ongoing maintenance. To further expand our market share, we also recognize the needintend to strengthen our network of sales partners and distribution channels.
We measure our financial success based on various key indicators, including growth in net sales, gross profitprofit, margin,income operatingfrom margin,operations, and net income per common share. In additionaladdition to these financial metrics, a critical non-financial indicator of our success is our ability to rapidly introduce new products and deliver the latest application-optimized server and storage solutions. To support this, we work closely with the developers and manufacturers of key components, allowing us to integrate emerging technologies as they become available. Our ability to quickly bring new products to market, which we believe is enabled by our Building Block Solution architecture andarchitecture, has historically enabled us to capitalize on major technology transitions such as the launch of new GPUs, microprocessors and storage technologies. Accordingly, we closely monitor the product introduction cycles of industry leaders, including NVIDIA Corporation, Intel Corporation, Advanced Micro Devices, Inc., Broadcom Inc., Samsung Electronics Company Limited, Micron Technology, Inc. and others. This strategic focus directly informs our research and development investments, as we continue to allocate resources toward both our current initiatives and future product innovation.
The growing use of AI, which requires enhanced datacenterdata center capabilities, has substantially increased demand for our products. We expect this trend to continue, with further demand for datacenterdata center expansion driven by the AI market. As a result, we will continue to enhance our product capabilities and expand our service offerings, including DCBBS to address the growing demand in the AI market and datacenterdata center markets. We believe that our ability to tailor certain products to the unique needs of these sectors sets us apart from many competitors and positions us to capture an even greater market share going forward.
Macroeconomic factors, including inflation, interest rate changes, capital market volatility, global supply chain constraints, tariffs, and global economic and geopolitical developments, have had and may continue to have direct and indirect impacts on our business and results of operations, particularly demand for our products and net sales. While difficult to isolate and quantify, these macroeconomic factors have also impacted and may continue to impact our supply chain and manufacturing costs, employee wages, costs for capital equipmentequipment, andthe value of our investments.investments, revenue and competitive position. During fiscal year 2026, the computer server industry experienced supply constraints for certain components, including memory and storage, as well as GPU and CPU availability, which affected the timing of certain of our product deliveries, as well as the pricing of these items. Further, while many of these macroeconomic factors could have a long termlong-term impact, others may have a short termshort-term impact which could lead to our financial results not being comparable on a period to periodperiod-to-period basis. Within our supply chain, we continuously manage product availability and costs with our vendors.
The following is a summary of our financial highlights for fiscal years 20252026 and 20242025 (in thousands, except per share amounts):
•Net sales increased by 77.8% in fiscal year 2026, as compared to fiscal year 2025, primarily driven by fulfillment and shipment of orders to support our customers' data center deployment, including large design wins from a few customers. The strong year-on-year growth was driven by our product mix, customer diversification, growth in enterprise and channel revenues and an increase in our average selling prices.
•Net sales increased by 46.6% in fiscal year 2025 as compared to fiscal year 2024. driven by an increase in demand from customers for GPU servers, HPC and rack-scale solutions which have higher average selling prices, primarily due to large enterprise and data center customers from the United States, Asia, and Europe where we experienced significant growth.
•Net income increased to $2,230.5 million in fiscal year 2026, as compared to $1,048.9 million in fiscal year 2025, as the increase in net sales was greater than the increase in operating costs, and was also sufficient to offset the decline in gross margin percentage.
•Net income decreased to $1,048.9 million in fiscal year 2025 as compared to $1,152.7 million in fiscal year 2024, which was primarily due to decrease in gross profit and increase in operating and other expenses partially, offset by the increase in net sales in fiscal year 2025 as compared to fiscal year 2024.
General
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statementsstatements, which are prepared in accordance with generally accepted accounting principles in the United States (“"U.S. GAAP”"). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. On an ongoing basis, we regularly evaluate our accounting estimates based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The actual impact on our financial performance could differ from these estimates under different assumptions or conditions.
An accounting estimate is considered critical if both (i) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (ii) the impact within a reasonable range of outcomes of the estimates and assumptions is material to our consolidated financial statements. We have criticalCritical accounting estimates in the areas of inventories, revenue recognition, inventories, and income taxes, when applicable, have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates.
SMCI | 2026 Form 10-K | 41
SMCI | 2025 Form 10-K | 42
We generate revenuerevenues from the sale of server and storage systems, includingsubsystems, systemsaccessories and related services, subsystems and accessories.services.
We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. We include estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are reassessed each reporting period and recorded as an adjustment to revenue, as applicable.
We apply judgment in determining the transaction price as we may be required to estimate variable consideration when determining the amount of revenue to recognize. As part of determining the transaction price in contracts with customers, we estimate reserves for future sales returns based on our history of actual returns for each major product line. Based upon historical experience, a refund liability is recorded at the time of sale for estimated product returns and an asset is recognized for the amount expected to be recorded in inventory upon product return, less the expected recovery costs.
We allocate the transaction price offor each customer contract to each performance obligation based on the relative StandaloneStand-alone Selling Price (“SSP”) for each performance obligation within each contract. We recognize the amount of transaction price allocated to each performance obligation within a customer contract as revenue at the time the respectiverelated performance obligation is satisfied by transferring control of the promised good or service to a customer. Determining the relative SSP for contracts that contain multiple performance obligations requires significant judgment. We determine SSP based on the price at which the performance obligation is sold separately. If the SSP is not observable through past transactions, we apply judgment to estimate the SSP. For substantially all of the performance obligations, we are able to establish the SSP basedby onmaximizing the observable pricesuse of productsobservable or services sold separately in comparable circumstances to similar customers.inputs. We typically establish an SSP range for our products and services, which is reassessed on a periodic basis or when facts and circumstances change. SSP for our products and services can evolve over time due to changes in our pricing practices, internally approved pricing guidelines with respect to geographies, customer type, internal costs, and gross margin objectives for the related performance obligations which can also be influenced by intense competition, changes in demand for our products and services, economic and other factors.
Revenue is recognized either over time or at a point in time, depending on when control of the underlying products or services are transferred to the customer, which may require judgment. Revenue is recognized at a point in time for products. Revenue is recognized over time for extended warranty andwarranty, on-site services providedprovided. andRevenue atrelated ato point in time for other services such assystem rack installation and integration services.services is recognized over time when services are performed and the customer receives and consumes the benefits.
Inventories are stated at lower of cost, using weighted average cost method, or net realizable value. Net realizable value is the estimated selling price of our products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Inventories consist of raw materials (principally electronic components), work in process (principally products being assembled), and finished goods (principally finished products and products ready for sale). We evaluate inventory on a quarterly basis for lower of cost or net realizable value and excess and obsolescence and, as necessary, write down the valuation of inventories.
We charge cost of sales for inventory provisions to write-down our inventory to the lower of cost or net realizable value or for obsolete or excess inventory, and for excess product purchase commitments. Most of our inventory provisions relate to excess quantities of products or components, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions, which requires management judgment.judgment, that vary based on inventory aging. Situations that may result in excess or obsolete inventory or excess product purchase commitments include changes in business and economic conditions, changes in market conditions, sudden and significant decreases in demand for our products, including potential cancellation or deferral of customer purchase orders, inventory obsolescence because of changing technology and customer requirements, new product introductions resulting in less demand for existing products or inconsistent spikes in demand, failure to estimate customer demand properly, ordering in advance of historical lead-times, government regulations and the impact of changes in future demand, or increase in demand for competitive products, including competitive actions. Net realizable value is the estimated selling price of our products in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
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SMCI | 2025 Form 10-K | 43
We receive various rebate incentives from certain suppliers based on our contractual arrangements, including volume-based rebates. The rebates earned are recognized as a reduction of cost of inventories and reduce the cost of sales in the period when the related inventory is sold.
Cost of Sales, Gross ProfitProfit, and Gross Margin
Cost of sales primarily consists of the costs to manufacture our products, which includes: the costs of components and materials, contract manufacturing, shipping, personnel expenses (salaries, benefits, stock-based compensation and incentive bonuses), equipment and facility expenses, warranty costscosts, and inventory reservevaluation charges.adjustment write-downs.
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components. We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights. Our purchases of products from Ablecom and Compuware combined represented 3.3%, 4.3%, and 6.6% of our cost of sales for fiscal years 2025, 2024, and 2023, respectively. For further details on our dealings with related parties, see Note 10, “Related Party Transactions” in the notes to the consolidated financial statements.
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components. We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights. Our purchases of products from Ablecom and Compuware combined represented 2.1%, 3.3%, and 4.3% of cost of sales on our consolidated statements of operations for fiscal years 2026, 2025, and 2024, respectively. For further details on our dealings with related parties, see Note 11, “Related Party Transactions” in the notes to the consolidated financial statements in this Annual Report.
Research and development expenses consist of personnel expenses including salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our research and development personnel, as well as product development costs such as materials and supplies, consulting services, third-party testing servicesservices, and equipment and facility expenses related to our research and development activities.
Sales and marketing expenses consist primarily of personnel expenses including salaries, benefits, stock-based compensationcompensation, commissions and incentive bonuses, and related expenses for our sales and marketing personnel, cost for trade shows, sales representative feesfees, and marketing programs. From time to time, we receive marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses.
General and administrative expenses consist primarily of general corporate costs, including personnel expenses such as salaries, benefits, stock-based compensation and incentive bonuses, and related expenses for our general and administrative personnel, financial reporting, corporate governance and compliance, outside legal, audit, tax fees, insuranceinsurance, and credit losses on accounts receivable.
Other Income (Expense), Net, Interest Income, Net and Interest Expense
Other income (expense), net, interest income, net and interest expense consists primarily of interest earned on our investments and cash balances, interest incurred on our debt, and foreign exchange gains and losses.
* Totals may not sum due to rounding.
*Represents an amount less than 0.1%.
Net Sales by Product Type
The following table presents net sales by product type for fiscal years 2025, 2024, and 2023 (dollars in millions):
During fiscal year 2025, we experienced increased net sales from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to the strong demand and increased billings for GPU & Super Racks of $5,804.0 million or 52% compared to prior year, including liquid-cooled and air-cooled servers which are generally more complex and of higher value, primarily related to our H200, H100, and B200 systems, resulting in an increase of average selling price of 34%. Our services and software net sales, included in server and storage systems net sales, increased by $102.2 million year-over-year.
The year-over-year decrease in net sales for our subsystems and accessories is primarily due to our strategic shift to focus on prioritizing sales of our server and storage systems.
During fiscal year 2024, we experienced increased net sales from server and storage systems, particularly from our large enterprise and datacenter customers. The year-over-year increase in net sales of server and storage systems was primarily due to the strong demand for GPU based rack-scale solutions, including liquid-cooled and air-cooled servers which are generally more complex and of higher value, resulting in an increase of average selling prices.
The year-over-year increase in net sales for our subsystems and accessories is primarily due to increased demand of accessories sold to our larger enterprise and data center customers as more accessories and spares were purchased in conjunction with the increased volume of full systems and servers. Our services and software net sales, included in server and storage systems net sales, increased by $53.8 million year-over-year.
Net Sales by Geography
The following table presents percentages of net sales by geographic region for fiscal years 2026, 2025, 2024, and 20232024 (dollars in millions):
During fiscal year 2026, we continued to experience increased net sales from server rack and storage systems due to fulfillment and shipment of orders to support our customers' data centers deployment, including large design wins from a few customers. The $17,091.1 million or 77.8% year-over-year increase in net sales of server and storage systems was primarily due to strong demand and increased billing for Hyper Servers, GPU & Super Racks of $15,261.5 million or 83.4% compared to prior year, including liquid-cooled and air-cooled servers that are generally more complex and of higher value, primarily related to our GB200, and GB300 systems. Our services and software net sales increased from $330.5 million, in fiscal year 2025, to $538.3 million, in fiscal year 2026, and contributed to overall growth, although product revenue remained the primary driver.
During fiscal year 2025, we experienced increased net sales from server and storage systems, particularly from our large enterprise and data center customers. The $6,982.8 million or 46.6% year-over-year increase in net sales of server and storage systems was primarily due to the strong demand and increased billings for GPU & Super Racks of $5,804.0 million or 52% compared to prior year, including liquid-cooled and air-cooled servers which are generally more complex and of higher value, primarily related to our H200, H100, and B200 systems, resulting in an increase of average selling price of 34%. Our services and software net sales increased by $102.2 million year-over-year.
SMCI | 2025 Form 10-K | 47
The year-over-year increase in total net sales is driven by an increase in demand from customers for GPU servers, HPC and rack-scale solutions which have higher average selling prices, especially from large enterprise and data center customers resulting in increased sales of 28.1% in the United States, 85.9% in Thailand and Japan, and 111.9% in the United Kingdom, Sweden, and Spain, where we have experienced significant growth.
The year-over-year increase in total net sales is driven by an increase in demand from customers for GPU servers, HPC and rack-scale solutions which have higher average selling prices, especially for large enterprise and data center customers from the United States. The year-over-year increase of net sales in the regions outside the United States is mainly due to an increase in net sales in Singapore, Taiwan, South Africa and Germany, including the increase in demand from customers for GPU servers in those countries.
Cost of sales and gross margin for fiscal years 2026, 2025, 2024, and 20232024 arewere as follows (dollars in millions):
The $15,293.7 million or 78.3% year-over-year increase in cost of sales was primarily attributeddriven toby an increase of $6,353.2$14,699.8 million or 50.6%73.3% in costscertain ofproducts components,including materials,GPU servers, HPC systems, and contractrack-scale manufacturingsolutions, expensesconsistent primarilywith duethe higher shipment volume during fiscal year 2026, as compared to fiscal year 2025. The remaining increases in shipmentscost of GPUsales servers,were HPC,driven and rack-scale solutions which have higher costs andby a $86.5$237.7 million or 493.6%228.3% increase in tariff expenseexpenses relateddriven toby new trade policies enacted during the year,year and a $149.6$312.9 million or 179.2%24.9% increase due to a decrease in vendor rebates, partially offset by a $43.8 million or 18.8% decrease in inventory write-down adjustments resulting from increased sales related to some of our aged inventory,inventory aproducts $67.9during millionthe or 28.6% increase in overhead costs which includes higher labor costs attributed to increase of operating activities, and a $43.6 million or 75.5% increase in freight charges.year.
Gross margin decreased to 10.8% in the fiscal year 2026, from 11.1% in the fiscal year 2025, primarily due to our strategy to offer competitive pricing to gain market share, change in product and customer mix, and higher manufacturing related expenses.
SMCI | 2026 Form 10-K | 46
The $6,614.3 million or 51.2% year-over-year increase in cost of sales was primarily attributed to an increase of $6,353.2 million or 50.6% in costs of components, materials, and contract manufacturing expenses primarily due to increases in shipments of GPU servers, HPC, and rack-scale solutions which have higher costs and a $86.5 million or 493.6% increase in tariff expense related to new trade policies enacted during the year, a $149.6 million or 179.2% increase in inventory write-down adjustments from aged inventory, a $67.9 million or 28.6% increase in overhead costs which includes higher labor costs attributed to increase of operating activities, and a $43.6 million or 75.5% increase in freight charges.
The year-over-year increase in cost of sales was primarily attributed to an increase of $7,006.7 million in costs of components, materials and contract manufacturing expenses primarily related to the increase in shipments of GPU servers, HPC, and rack scale solutions which have higher costs, a $52.3 million increase in inventory write-down adjustments, a $19.6 million increase in overhead costs which includes labor costs attributed to increase of operation activities and a $8.7 million increase in freight charges.
The year-over-year decrease in the gross margin percentage was primarily due to our strategy to offer competitive pricing to gain market share, increased competition and a change in product and customer mix.
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Operating expenses for fiscal years 2026, 2025, 2024, and 20232024 arewere as follows (dollars in millions):
Research and development expenses. The $134.6 million or 21.1% year-over-year increase in research and development expenses was primarily driven by a $153.2 million or 34.7%an increase in employee-related costs,costs of $128.2 million or 22.8%, mainly comprised of a $81.0$74.5 million or 70.0%38.1% increase in stock-based compensation, and $60.2a $53.7 million or 20.2%14.6% increase in salaries,salaries and benefits as we expanded our workforce and invested in key talent. Additionally, there was a $28.3 million or 78.3% increase in product development coststalent to support theour developmentglobal ofgrowth next-generationacross products and technologies.regions. These increasesincreases, along with other immaterial cost increasesincreases, were partially offset by ana $11.0$6.1 million or 50.9%9.7% increasedecrease in research andproduct development feescosts. receivedWe frombelieve certain suppliers and customers. Looking ahead, we expectthat research and development expenses towill continue to riseincrease as we continue to expand our workforce and invest in key talent to remainstay at the forefront of innovationdevelopment inof next-generationnext generation products and technologies.
Sales and marketing expenses. The $79.5 million or 29.1% year-over-year increase in sales and marketing expenses was primarily driven by a $53.5 million or 30.9%an increase in employee-related costs,costs mainlyof due to a $30.9$112.7 million or 23.0%54.1%, mainly comprised of a $105.5 million or 61.9% increase in salaries and benefits, and a $16.6$7.2 million or 78.3%19.0% increase in stock-based compensation, similarlysimilar to our research and development expenses as we expanded our workforce and invested in key talent company-wide. Additionally, there was a $50.0 million or 164.6% increase in advertising, travel, and other related expenses due to an increase in our marketing efforts to support the launch and promotion of new products. These increases, along with other immaterial cost increases,increases were partially offset by a $20.8$29.8 million or 132.6%81.6% increase in additionalhigher marketing development feesfunds received from certain vendors.business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and a $3.3 million or 4.1% decrease in standard marketing and advertising activities during fiscal 2026 as compared to fiscal 2025. Looking ahead, we expect sales and marketing expenses to continue to rise as we expand our workforce and invest in key talent.
What changed in the latest 10-Q
Risk Factors
New heading “If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.”
New heading “Our operations are impacted by complex laws, rules and regulations related to import and export controls to which our business is subject, and rapid changes in such laws, rules, and regulations as well as political and other actions related thereto may adversely impact our business.”
Largest changes
“Although we attempt to ensure that we, our customers, suppliers, resellers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of our customers, suppliers, resellers and partners are not within our complete control, and our products could be re-exported to sanctioned persons or countries or provided by our retailers to third persons in contravention of our requirements or instructions or the laws. …”see in full comparison
“We are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including economic sanctions administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control and the import and export controls enforced by the U.S. Commerce Department’s Bureau of Industry and Security, among other U.S. government agencies. If we fail to comply with applicable sanctions, export control or import laws and regulations, we may be subject to civil or criminal penalties. …”see in full comparison
“Such restrictions could include additional unilateral or multilateral import and export controls on certain products or technology, including but not limited to AI technologies and high-performance computing. As geopolitical tensions have increased, products containing semiconductors associated with AI, including GPUs and associated products, are increasingly the focus of export control restrictions proposed by stakeholders in the U.S. and its allies. …”see in full comparison
“On March 19, 2026, the U.S. Attorney’s Office for the Southern District of New York unsealed an indictment of three individuals either employed or associated with the Company at the time in connection with an alleged conspiracy to commit export control violations (the “Indictment”). …”see in full comparison
“Increasing use of economic sanctions and import and export controls has impacted and may in the future impact demand for our products or services, negatively impacting our business and financial results. Reduced demand due to import and export controls could also lead to excess inventory or cause us to incur related supply charges. Additional unilateral or multilateral controls are also likely to include deemed export control limitations that may also have negative impacts. …”see in full comparison
“Our operations are impacted by complex laws, rules and regulations related to import and export controls to which our business is subject, and rapid changes in such laws, rules, and regulations as well as political and other actions related thereto may adversely impact our business.”see in full comparison
Full comparison: every changed paragraph (26)
Our operations and financial results are subject to various risks and uncertainties, including the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025, which are incorporated herein by reference, and which could adversely affect our business, financial conditions, and future results. There have been no material changes from the risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.2025, except as set forth below.
If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.
Negative publicity about us or our products, even if inaccurate or untrue, could adversely affect our reputation and confidence in our products, which could harm our business and operating results. For example, on August 27, 2024, a news article was published by a short seller alleging evidence of accounting manipulation, sibling self-dealing and sanctions evasion (the “Report”). We indicated that such Report contained false or inaccurate statements about us, including misleading presentations of information we previously shared publicly and announced the results of the related Special Committee investigation.
SMCI | Q3 2026 Form 10-Q | 56
On March 19, 2026, the U.S. Attorney’s Office for the Southern District of New York unsealed an indictment of three individuals either employed or associated with the Company at the time in connection with an alleged conspiracy to commit export control violations (the “Indictment”). Although the Company is not named as a defendant in the Indictment and has been cooperating with the government’s investigation, and although the three individuals are no longer employed or associated with the Company, the Indictment, as well as the prior publication of the Report and our previous Delinquent Reports have all contributed to significant volatility in, and declines of, the trading price of our common stock, as well as harm to our reputation, and could continue to do so in the future.
Harm to our reputation has in the past, and may in the future, arise from many other sources, including employee misconduct, such as in connection with the alleged conduct described in the Indictment involving individuals associated with the Company at the time, and misconduct by our partners, consultants and outsourced service providers. Additionally, negative publicity with respect to our partners or service providers could also affect our business and operating results to the extent that we rely on these partners or if our customers or prospective customers associate us with these partners.
Our operations are impacted by complex laws, rules and regulations related to import and export controls to which our business is subject, and rapid changes in such laws, rules, and regulations as well as political and other actions related thereto may adversely impact our business.
We are subject to U.S. and other applicable trade control regulations that restrict with whom we may transact business, including economic sanctions administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control and the import and export controls enforced by the U.S. Commerce Department’s Bureau of Industry and Security, among other U.S. government agencies. If we fail to comply with applicable sanctions, export control or import laws and regulations, we may be subject to civil or criminal penalties. Any future violations could have an adverse impact on our ability to sell our products to United States federal, state and local government and related entities. We have business relationships with companies in China, in Eastern Europe, and elsewhere who have been, or may in the future be, added to a restricted party list. We take steps to minimize business disruption when these situations arise; however, we may be required to terminate or modify such relationships if our activities are prohibited by U.S. or other applicable laws. Further, our association with these parties could subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, government enforcement agencies, or the general public. The United States and other countries continually update their lists of import and export-controlled items and technologies, and may impose new or more-restrictive import, export, or sanctions requirements on our products in the future. As a result of regulatory changes, we may be required to obtain licenses or other authorizations to continue supporting existing customers or to supply existing products to new customers in China, Eastern Europe and elsewhere. Further escalations in trade restrictions or hostilities, particularly between the United States and China, could impede our ability to sell or support our products. Although we historically sold products into Russia before broad sanctions were imposed, we no longer sell products or provide services to Russia. We had last recorded revenue from customers based in Russia in February 2022.
Moreover, the increasing focus on the risks and strategic importance of AI technologies has resulted in regulatory restrictions that target products and services capable of enabling or facilitating AI and may in the future result in additional restrictions impacting some or all of our product and service offerings.
Concerns regarding third-party use of AI for purposes contrary to governmental interests, including concerns relating to the misuse of AI applications, models, and solutions, has resulted in and could in the future result in unilateral or multilateral restrictions on products that can be used for training, modifying, tuning, and deploying large language models (“LLMs”). Such restrictions have limited and could in the future limit the ability of downstream customers and users worldwide to acquire, deploy and use systems that include our products, software, and services, and negatively impact our business and financial results.
SMCI | Q3 2026 Form 10-Q | 57
Such restrictions could include additional unilateral or multilateral import and export controls on certain products or technology, including but not limited to AI technologies and high-performance computing. As geopolitical tensions have increased, products containing semiconductors associated with AI, including GPUs and associated products, are increasingly the focus of export control restrictions proposed by stakeholders in the U.S. and its allies. The United States has imposed unilateral controls restricting GPUs and associated products, and it is likely that additional unilateral or multilateral controls will be adopted. Such controls have been and may again be very broad in scope and application, prohibit us from exporting our products to any or all customers in one or more markets, including but not limited to China, and could tangentially negatively impact our warehousing locations and options, or could impose other conditions that limit our ability to serve demand abroad and could negatively and materially impact our business, revenue and financial results. Violations or alleged violations of such unilateral controls restricting GPUs and associated products, such as in connection with the alleged conduct described in the Indictment involving individuals associated with the Company at the time, have contributed to significant volatility in, and declines of, the trading price of our common stock, as well as harm to our reputation.
Import and export controls targeting products containing GPUs and semiconductors associated with AI, which have been imposed and are increasingly likely to be further tightened, would further restrict our ability to export our technology, products, or services given that competitors may not be subject to similar restrictions, creating a competitive disadvantage for us and negatively impacting our business and financial results. In addition, such controls may subject downstream users to additional restrictions on the use, resale, repair, or transfer of our products, negatively impacting our business and financial results. Controls could negatively impact our cost and/or ability to provide services.
Import and export controls could disrupt our supply chain and distribution channels, negatively impacting our ability to serve demand, including in markets outside China. Repeated changes in the export control rules are likely to impose compliance burdens on our business and our customers, negatively and materially impacting our business.
Increasing use of economic sanctions and import and export controls has impacted and may in the future impact demand for our products or services, negatively impacting our business and financial results. Reduced demand due to import and export controls could also lead to excess inventory or cause us to incur related supply charges. Additional unilateral or multilateral controls are also likely to include deemed export control limitations that may also have negative impacts. Additional export restrictions may not only impact our ability to serve overseas markets, but also provoke responses from foreign governments, including China, that negatively impact our supply chain or our ability to provide our products and services to customers in all markets worldwide, which could also substantially reduce our revenue.
In October 2022, U.S. export restrictions and export licensing requirements were imposed targeting China’s semiconductor and supercomputing industries. These restrictions impact exports of software, hardware, equipment and technology used to develop, produce or manufacture certain chips in China (including Hong Kong). At the same time, export restrictions and export license requirements were also imposed on certain GPUs and advanced integrated circuits, as well as computing equipment containing such components, with a focus on China (including Hong Kong). These restrictions impacted certain of our products, including products that contain the NVIDIA A100 and H100 integrated circuits, among others.
In November 2023, the export control restrictions on advanced integrated circuits, supercomputing and other end uses were revised and further expanded to cover additional countries where we sell our products, including in the Middle East, and additional parties based on the location of their headquarters, or the headquarters of their ultimate parent. Compliance with ever-changing regulations is complex and time consuming. We may experience delays in implementing procedures to address the changing regulatory requirements.
SMCI | Q3 2026 Form 10-Q | 58
In January 2025, the U.S. export control regulations targeting advanced integrated circuits and computing were further revised to include a worldwide authorization requirement for certain of our advanced computing products. New license exceptions were added to the regulations and allow us to export in some cases without the need for an export license, thus expanding upon previous authorizations. However, these new regulations will, depending on the country and ultimate consignee, also place new limits on the number of advanced computing products that we can export to each ultimate consignee per calendar year, and the number of advanced computing products that the Commerce Department will license per-country over a given period to all exporters in the aggregate. These new limitations create a competitive process for obtaining the product allocation associated with these new government authorizations and therefore could disadvantage us against certain of our competitors. The limitations could also prevent us from selling our advanced computing products to the full extent of customer demand in certain countries that have not historically been subject to these limitations.
In some cases, we rely on channel partners and third parties to distribute and resell our products globally. If channel partners, or their customers, do not adhere to the applicable trade compliance requirements, this can subject us to greater scrutiny or reputational harm among current or prospective customers, partners, suppliers, investors, other parties doing business with us or using our products, government enforcement agencies, or the general public.
In the event import and export controls require us to transition some operations out of certain geographies, such transitions could be costly and time consuming, and adversely affect our operations during any such transition period. To the extent that customer requires products covered by the licensing requirements, we may seek a license for the customer. However, the licensing process is time-consuming. We have no assurance that any such license will be granted or that the license application will be acted upon in a timely manner or at all. Even if a license is offered, it may impose burdensome conditions that we or our customer or end users cannot or decide not to accept.
The process to obtain licenses required under recently adopted export control regulations is complicated and time consuming in the event we determine to pursue them, and there are no assurances they may be granted at all. Our competitive position and future results may be harmed, over the long-term, if there are further changes in import and export controls, including further expansion of the geographic, customer, end use, deemed export, or product scope of the controls, if customers purchase product from competitors, if customers develop their own internal solution, if we are unable to provide contractual warranty or other extended service obligations, if licenses are not granted in a timely manner or denied to significant customers or if we incur significant transition costs. Even if requested licenses are granted, the licenses may be temporary or impose burdensome conditions that we or our customers or end users cannot or choose not to fulfill. The licensing requirements may benefit certain of our competitors, as the licensing process will make our technical support efforts more cumbersome and less certain and encourage customers to pursue alternatives to our products.
Given the increasing strategic importance of AI and rising geopolitical tensions, the export control rules may change again at any time and further subject a wider range of our products to export restrictions and licensing requirements, negatively impacting our business and financial results. In the event of such change, we may be unable to sell our inventory of such products and may be unable to develop replacement products not subject to the licensing requirements, effectively excluding us from markets subject to such restrictions, as well as other impacted markets. Any new control that impacts a wider range of our products would likely have a disproportionate impact on us and may disadvantage us against certain of our competitors that sell products that are outside the scope of such control.
Finally, our business depends on our ability to receive consistent and reliable supplies from our overseas partners, especially in Taiwan. Any new restrictions that negatively impact our ability to receive supply of components, parts, or services from Taiwan, would negatively impact our business and financial results.
SMCI | Q3 2026 Form 10-Q | 59
Although we attempt to ensure that we, our customers, suppliers, resellers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all. Actions of our customers, suppliers, resellers and partners are not within our complete control, and our products could be re-exported to sanctioned persons or countries or provided by our retailers to third persons in contravention of our requirements or instructions or the laws. In addition, there are inherent limitations to the effectiveness of any policies, procedures, and internal controls relating to such compliance, and there can be no assurance that such procedures or internal controls will work effectively at all times or protect us against liability under anti-corruption, sanctions or other laws for actions taken by us, our resellers or partners. For example, the Indictment alleged that the three individuals employed or associated with the Company at the time worked closely with third-party brokers with customers based in China to commit export-control violations. Any such potential violation by us, our customers, suppliers, resellers, or our partners could have negative consequences, including government inquiries, investigations, enforcement actions, monetary fines, or civil and/or criminal penalties, and our reputation, brand, and revenue may be harmed.
Management's Discussion & Analysis (MD&A)
New heading “Other Income (Expense), Net, Interest Income, and Interest Expense”
Removed heading “Other Income, Net, Interest Income, and Interest Expense”
Largest changes
“The 5.5% decrease in the gross margin was due to a change in product and customer mix, higher production and expedite costs as we began to ship new AI GPU platforms on a large scale and the increases in tariff expense and inventory write-down adjustments described above.”see in full comparison
“Other Income (Expense), Net, Interest Income, and Interest Expense”see in full comparison
“General and administrative expenses. The $5.4 million or 4.2% increase in general and administrative expenses was primarily attributable to a $7.1 million or 30.3% increase in indirect facilities costs such as rental costs, utility costs, and depreciation costs, a $4.3 million or 104.7% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, a $2.9 million or 27.3% increase in consulting fees, driven by greater use of external consultants to support and enhance our financing activities and ot …”see in full comparison
“The $33.8 million or 114.6% decrease in other income (expense), net was primarily driven by one-time $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, “Convertible Notes”) recorded during the nine months ended March 31, 2025, as well as a $8.7 million or 4242.4% gain from mark-to-market adjustments on a marketable equity securities investment for the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, and a $3.9 million or 93.9% increase due to favorable foreign curren …”see in full comparison
“General and administrative expenses. The $6.8 million or 10.7% increase in general and administrative expenses was primarily attributable to a $6.4 million or 567.4% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, and an increase of $3.5 million or 30.3% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. …”see in full comparison
Full comparison: every changed paragraph (73)
We commenced operations in 1993 and have been profitable every year since inception. For the three months ended DecemberMarch 31, 20252026 and 2024,2025, our net income was $400.6$483.4 million and $320.6$108.8 million, respectively. For the sixnine months ended DecemberMarch 31, 20252026 and 2024,2025, our net income was $568.8$1,052.2 million and $744.9$853.7 million, respectively.
In order to increase our sales and profits, we believe that we must continue to develop flexible application optimized server and storage solutions while being among the first to market with new features and products. Our focus is on delivering Total IT Solutions that integrate, validate, and deliver server, storage, networking and software at the rack and cluster (multi-rack) level. Additionally, we will continue to expand our software offerings and enhance customer service and support, particularly as we increase our focus on large enterprise and data center customers. A key component of our strategy is our Data Center Building Block Solutions (“DCBBS”), which significantly reduces data center build time and enables full integration of AI computing, server, storage, networking, rack, cabling, liquid cooling, end-to-end management software, onsite deployment services, and ongoing maintenance. To further expand our market share, we also recognize the needintend to strengthen our network of sales partners and distribution channels.
The growing use of AI, which requires enhanced datacenterdata center capabilities, has substantially increased demand for our products. We expect this trend to continue, with further demand for datacenterdata center expansion driven by the AI market. As a result, we will continue to enhance our product capabilities and expand our service offerings, including DCBBS to address the growing demand in the AI market and datacenterdata center markets. We believe that our ability to tailor certain products to the unique needs of these sectors sets us apart from many competitors and positions us to capture an even greater market share going forward.
The following is a summary of our financial highlights for the three months ended DecemberMarch 31, 20252026 and 20242025:
•Net sales increased by 123.4%122.7% in the three months ended DecemberMarch 31, 20252026, as compared to the three months ended DecemberMarch 31, 20242025, primarily driven by fulfillment and shipment of orders to support our customers' datacenterdata center deployment, including a large design winwins from onea customer,few customers, during the second quarter,and somethird quarters of whichfiscal were originally delayed in the previous quarter, due to customer configuration upgrades and data center readiness matters.2026. An increase in our average selling price also contributed modestly by product mix.
•Gross margin decreased to 6.3% in the three months ended December 31, 2025 from 11.8% in the three months ended December 31, 2024, primarily due to our strategy to offer competitive pricing to gain market share and a change in product and customer mix.
•Operating expenses increased by 7.6% in the three months ended December 31, 2025 as compared to the three months ended December 31, 2024, primarily due to higher headcount and increases in salary and stock-based compensation.
•NetGross incomemargin increasedremained torelatively $400.6 millionflat in the three months ended DecemberMarch 31, 20252026, as compared to $320.6 million in the three months ended DecemberMarch 31, 2024, which was primarily due to a higher increase in net sales.2025.
•Operating expenses increased by 33.9% in the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, primarily due to higher headcount and increases in salary and stock-based compensation.
•Net income increased to $483.4 million in the three months ended March 31, 2026, as compared to $108.8 million in the three months ended March 31, 2025, which was primarily due to a higher increase in net sales.
Cost of Sales, Gross ProfitProfit, and Gross Margin
We use several suppliers and contract manufacturers to design and manufacture subsystems in accordance with our specifications, with most final assembly and testing performed at our manufacturing facilities in the region where our products are sold. We work with Ablecom, one of our key contract manufacturers and a related party, for our chassis and certain other components. We also outsource a significant part of the manufacturing of certain components, particularly power supplies, to Compuware, also a related party. We also collaborate on design and development activities with Ablecom and Compuware, where we substantially fund the design costs and retain the intellectual property rights. Our purchases of products from Ablecom and Compuware combined represented 1.6%2.2% and 2.1% of cost of sales on our condensed consolidated statements of operations for the three and sixnine months ended DecemberMarch 31, 2025,2026, respectively, and 2.7%2.8% and 3.7%3.4% of cost of sales on our condensed consolidated statements of operations for the three and sixnine months ended DecemberMarch 31, 2024,2025, respectively. For further details on our dealings with related parties, see Note 10,11, “Related Party Transactions” in the notes to the condensed consolidated financial statements.
Sales and marketing expenses consist primarily of personnel expenses including salaries, benefits, stock-based compensationcompensation, commissions and incentive bonuses, and related expenses for our sales and marketing personnel, cost for trade shows, sales representative fees and marketing programs. From time to time, we receive marketing development funding from certain suppliers. Under these arrangements, we are reimbursed for certain marketing costs that we incur as part of the joint promotion of our products and those of our suppliers. These amounts offset a portion of the related expenses and have the effect of reducing our reported sales and marketing expenses.
Other Income,Income (Expense), Net, Interest Income, and Interest Expense
Other income,income (expense), net, interest income, and interest expense consists primarily of interest earned on our investments and cash balances, interest incurred on our debt, and foreign exchange gains and losses.
The following table presents certain items of our condensed consolidated statements of operations for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 (in millions):
The following table presents certain items of our condensed consolidated statements of operations expressed as a percentage of net sales for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025:
The following table presents net sales for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 (dollars in millions):
The $7,004.5 million or 123.4% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' datacenters deployment, including a large design win from a customer, during the three months ended December 31, 2025, some of which were originally delayed due to customer configuration upgrades and data center readiness matters. An increase in our average selling price compared to the prior quarter ended December 31, 2024 also contributed modestly by product mix. This was most pronounced in increased billings for AI GPU related products of $7,398.2 million or 169.7% year over year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price. This was partially offset by decreased sales across other product categories by $475.9 million, or 42.5% as we continue to focus on gaining market share from our AI GPU platforms.
The $6,085.1$5,643.1 million or 52.4%122.7% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' datacentersdata centers deployment, including a large design winwins from a customer,few customers, during the sixthree months ended DecemberMarch 31, 2025.2026. An increase in our average selling price compared to the six monthsquarter ended DecemberMarch 31, 20242025 also contributed modestly by product mix. This was most pronounced in increased billingssales for AI GPU related products of $6,870.4$5,158.6 million or 77.4%150.5% year over year,year-over-year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price. This was partially offset by decreased sales across other product categories by $784.5 million, or 34.3% as we continue to focus on gaining market share from our AI GPU platforms.
The $11,728.2 million or 72.3% increase in net sales was primarily due to fulfillment and shipment of orders to support our customers' data centers deployment, including large design wins from a few customers, during the nine months ended March 31, 2026. An increase in our average selling price compared to the nine months ended March 31, 2025, also contributed modestly by product mix. This was most pronounced in increased sales for AI GPU related products of $12,028.9 million or 97.8% year-over-year, including liquid-cooled and air-cooled servers that are generally more complex and of higher average selling price. This was partially offset by decreased sales across other product categories by $318.0 million, or 34.9% as we continue to focus on gaining market share from our AI GPU platforms.
Cost of sales and gross margin for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 arewere as follows (dollars in millions):
SMCI | Q2 2026 Form 10-Q | 42
The $6,876.0$5,064.6 million or 137.3%121.8% increase in cost of sales was primarily driven by an increase of approximately $6,429.2$5,047.8 million or 119.2%121.6% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the three months ended DecemberMarch 31, 20252026, as compared to the three months ended DecemberMarch 31, 2024.2025, Theas remainingwell increases in cost of sales were driven byas a $142.0$89.4 million or 2621.0%608.0% increase in tariff expenses driven by new trade policies,policies from the government. These increases were partially offset by a $107.3$54.9 million or 419.8%43.9% increasedecrease in inventory write-down adjustments resulting from excessincrease andin obsoletemarket inventoryprice withfor eithersome insufficientof demandour orproducts reducedin realizablethe value,quarter ended March 31, 2026, and a $197.4$12.3 million or 47.5%5.5% increasedecrease due to aan decreaseincrease in vendor rebates.
SMCI | Q3 2026 Form 10-Q | 46
Gross margin remained relatively flat for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025.
The 5.5% decrease in the gross margin was due to a change in product and customer mix, higher production and expedite costs as we began to ship new AI GPU platforms on a large scale and the increases in tariff expense and inventory write-down adjustments described above.
The $6,264.7$11,329.4 million or 61.6%79.1% increase in cost of sales was primarily driven by an increase of approximately $5,657.2$10,636.2 million or 52.2%72.0% in certain products including GPU servers, HPC systems, and rack-scale solutions, consistent with the higher shipment volume during the sixnine months ended DecemberMarch 31, 20252026, as compared to the sixnine months ended DecemberMarch 31, 2024.2025. The remaining increases in cost of sales were driven by a $184.2$273.6 million or 1151.3%891.0% increase in tariff expenses driven by new trade policies, a $134.7$79.9 million or 388.0%50.0% increase in inventory write-down adjustments resulting from excess and obsolete inventory with either insufficient demand or reduced net realizable value, and a $288.6$276.3 million or 40.0%29.2% increase due to a decrease in vendor rebates.
Operating expenses for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 arewere as follows (dollars in millions):
SMCI | Q2 2026 Form 10-Q | 43
Research and development expenses. The $22.6$52.8 million or 14.3%32.4% increase in research and development expenses was primarily driven by an increase in employee-related costs of $20.0$50.9 million, or 13.6%,34.6%, mainly comprised of a $14.4$28.6 million, or 17.0%,52.8%, increase in stock-based compensation, a $18.2 million, or 22.1%, increase in salaries, and a $8.7$4.1 million, or 17.2%,10.4% increase in stock-based compensation,benefits as we expanded our workforce and invested in key talent to support our global growth across regions.
Sales and marketing expenses. The $6.5 million or 8.2% decrease in sales and marketing expenses was primarily driven by a $11.6 million, or 240.8%, higher marketing development fund received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and $13.1 million, or 48.6%, decrease in standard marketing and advertising activities during the three months ended December 31, 2025 as compared to the three months ended December 31, 2024. These decreases along with other minor cost decreases were partially offset by an increase in employee-related costs, mainly due to a $17.0 million, or 41.2%, increase in salaries and a $0.8 million, or 8.0%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide.
General and administrative expenses. The $6.8 million or 10.7% increase in general and administrative expenses was primarily attributable to a $6.4 million or 567.4% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, and an increase of $3.5 million or 30.3% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. Additionally, there was a $0.8 million or 15.2% increase in consulting fees, driven by greater use of external consultants to support and enhance our financing activities and other initiatives. These increases were partially offset by a $4.6 million or 39.5% reduction in legal fees driven by the absence of litigation fees due to resolved legal matters.
ResearchSales and developmentmarketing expenses. The $63.6$29.5 million or 21.9%49.2% increase in researchsales and developmentmarketing expenses was primarily driven by an increase in employee-related costs of $60.1$26.1 million, or 22.1%,53.2%, mainly comprised of a $36.2$23.0 million, or 21.8%,61.8%, increase in salaries, and a $29.6$2.4 million, or 33.9%,24.2%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide. Other increases include a $3.4 million, or 57.6%, increase in standard marketing and advertising activities during the three months ended March 31, 2026, as compared to supportthe ourthree globalmonths growthended acrossMarch regions.31, 2025.
Sales and marketing expenses. The $27.4 million or 18.5% decrease in sales and marketing expenses was primarily driven by a $28.8 million, or 268.3%, higher marketing development fund received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and a $15.7 million, or 36.7%, decrease in normal marketing and advertising activities the six months ended December 31, 2025 as compared to the six months ended December 31, 2024. These decreases along with other minor cost decreases were partially offset by an increase in employee-related costs, mainly due to a $12.2 million, or 14.1%, increase in salaries and a $4.1 million, or 23.7%, increase in stock-based compensation, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide.
General and administrative expenses. The $5.4 million or 4.2% increase in general and administrative expenses was primarily attributable to a $7.1 million or 30.3% increase in indirect facilities costs such as rental costs, utility costs, and depreciation costs, a $4.3 million or 104.7% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, a $2.9 million or 27.3% increase in consulting fees, driven by greater use of external consultants to support and enhance our financing activities and other initiatives. Additionally, there was a $1.9 million or 3.2% net increase in employee-related costs including salaries, bonus, and stock-based compensation as we expanded our workforce and invested in key talent. These increases were partially offset by a $6.6 million or 51.3% reduction in audit and tax fees, driven by an absence of additional costs related to the delayed filing of our fiscal 2024 Form 10-K, and a $5.3 million or 30.0% reduction in legal fees driven by the absence of litigation fees due to resolved matters.
General and administrative expenses. The $17.1 million or 24.3% increase in general and administrative expenses was primarily driven by an increase in employee-related costs of $6.1 million, or 16.4%, mainly comprised of a $5.5 million, or 41.4% increase in stock-based compensation, due to the hiring of key talent and the refresh of grants. Additionally, there was a $6.0 million, or 2000.0%, increase in financial fees primarily driven by a $5.7 million, or 100.0%, increase in factoring fees for the receivables sold under the Receivables Purchase Agreement, a $2.4 million or 133.3% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year quarter which increased the related tax expense, and a $1.6 million, or 6.5%, increase in professional and service fees primarily from additional external accounting, tax, legal and advisory services to support our external reporting related activities.
Research and development expenses. The $116.4 million or 25.7% increase in research and development expenses was primarily driven by an increase in employee-related costs of $107.9 million, or 26.6%, mainly comprised of a $58.5 million, or 41.3%, increase in stock-based compensation, a $39.4 million, or 17.0%, increase in salaries, and a $10.0 million, or 31.3% increase in benefits as we expanded our workforce and invested in key talent to support our global growth across regions.
Sales and marketing expenses. The $2.1 million or 1.0% increase in sales and marketing expenses was primarily driven by an increase in employee-related costs of $42.9 million, or 27.6%, mainly comprised of a $34.7 million, or 28.4%, increase in salaries, a $6.5 million, or 27.2%, increase in stock-based compensation, and a $1.7 million, or 27.4%, increase in other personnel costs, similar to our research and development expenses as we expanded our workforce and invested in key talent company-wide. These increases were partially offset by a $28.9 million, or 111.2%, increase in marketing development funds received from certain business partners related to co-marketing and advertising events to promote products, which reduced sales and marketing expense, and a $12.2 million, or 19.1%, decrease in standard marketing and advertising activities during the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025.
General and administrative expenses. The $22.5 million or 11.3% increase in general and administrative expenses was primarily driven by an increase in employee-related costs of $9.5 million, or 9.2%, mainly comprised of a $7.5 million or 12.6% increase in salaries and benefits, and a $2.0 million, or 4.5% increase in stock-based compensation, due to the hiring of key talent and the refresh of grants. Additionally, there was a $7.2 million, or 124.1% increase in excise and franchise tax expense directly related to the increase in sales compared to prior-year which increased the related tax expense, a $6.0 million, or 857.1%, increase in financial fees primarily driven by a $5.7 million, or 100.0% increase in factoring fees for the receivables sold under the Receivables Purchase Agreement, a $6.0 million, or 12.3%, increase in professional and service fees primarily from additional external accounting, tax, legal and advisory services to support our external reporting related activities, and an increase of $5.6 million or 65.1% in indirect facilities costs such as rental costs, utility costs, and depreciation costs. These increases were partially offset by a $11.6 million or 56.9% reduction in audit and tax fees, driven by an absence of additional costs related to the delayed filing of our fiscal 2024 Form 10-K.
Other Income, Net, Interest Income, and Interest Expense
Other income, net, interest income, and interest expense for the three and six months ended December 31, 2025 and 2024 are as follows (dollars in millions):
The $4.0 million or 95.2% decrease in other income, net was primarily driven by unfavorable foreign currency exchange rate fluctuations resulting from a weaker U.S. dollar during the three months ended December 31, 2025.
The $42.2 million or 479.5% increase in interest income, net for the three months ended December 31, 2025 as compared to the three months ended December 31, 2024, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance.
The $18.8 million or 289.2% increase in interest expense was primarily driven by a $22.7 million or 2012.3% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025. This increase was partially offset by a $3.6 million or 70.6% decrease in interest expense associated with our Bank of America line of credit and term loans, which were fully repaid in November 2024.
The $3.3 million or 97.1% decrease in other income, net was primarily driven by a $13.7 million impairment loss related to our non-marketable investments during the six months ended December 31, 2025. This decrease along with other minor decreases were partially offset by a $7.9 million or 755.0% gain from mark-to-market adjustments on a marketable equity securities investment for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024.
The $85.6 million or 509.5% increase in interest income was primarily driven by higher interest income. This is mainly comprised of an increase of $85.6 million or 510.1% in interest income for the six months ended December 31, 2025 as compared to the six months ended December 31, 2024, reflecting increased cash deposits funded by the proceeds from our convertible notes issuance.
The $26.4 million or 110.5% increase in interest expense was primarily driven by a $44.5 million or 1500.0% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025. This increase was partially offset by a $17.9 million or 88.3% decrease in interest expense associated with our Bank of America line of credit and term loans, which were fully repaid in November 2024.
Other Income (Expense), Net, Interest Income, and Interest Expense
Other income (expense), net, interest income, and interest expense for the three and nine months ended March 31, 2026 and 2025 were as follows (dollars in millions):
The $37.2 million or 112.7% increase in other income (expense), net was primarily driven by one-time $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, “Convertible Notes”) recorded during the three months ended March 31, 2025, as well as a $3.5 million or 1183.1% increase due to favorable foreign currency exchange rate fluctuations during the three months ended March 31, 2026.
The $30.7 million or 208.8% increase in interest income for the three months ended March 31, 2026, as compared to the three months ended March 31, 2025, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance and financing arrangements with a customer.
The $51.1 million or 381.3% increase in interest expense was primarily driven by a $11.8 million or 98.6% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025, as well as $34.6 million additional interest expense related to the drawdown on our revolving credit facilities during the third quarter of fiscal 2026.
The $33.8 million or 114.6% decrease in other income (expense), net was primarily driven by one-time $30.3 million loss on extinguishment of our Original 2029 Convertible Notes resulting from the 2029 Convertible Notes Amendments (see Note 9, “Convertible Notes”) recorded during the nine months ended March 31, 2025, as well as a $8.7 million or 4242.4% gain from mark-to-market adjustments on a marketable equity securities investment for the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, and a $3.9 million or 93.9% increase due to favorable foreign currency exchange rate fluctuations during the nine months ended March 31, 2026. These increases were partially offset by a $13.7 million impairment loss related to our non-marketable investments during the nine months ended March 31, 2026.
The $116.4 million or 370.7% increase in interest income for the nine months ended March 31, 2026, as compared to the nine months ended March 31, 2025, was primarily driven by higher interest income as a result of increased cash deposits funded by the proceeds from our convertible notes issuance and financing arrangements with a customer.
SMCI | Q3 2026 Form 10-Q | 49
The $77.5 million or 207.8% increase in interest expense was primarily driven by a $56.3 million or 377.3% increase in interest and amortization related to the amendment of the 2029 Convertible Notes and new issuance of the 2028 Convertible Notes and the 2030 Convertible Notes during the second half of fiscal 2025, as well as $34.6 million additional interest expense related to the drawdown on our revolving credit facilities during the third quarter of fiscal 2026. These increases were partially offset by a $10.6 million decrease in interest expense associated with our Bank of America and Cathay line of credit and term loans, which were fully repaid during the first half of fiscal 2025.
Income tax provision and effective tax rates for the three and nine months ended DecemberMarch 31, 20252026 and 20242025 arewere as follows (dollars in millions):
Income tax provision increased by $42.1$121.1 million or 73.9%2,087.9% primarily due to an increase in worldwide income before income tax provision that increased tax expense by $26.4$104.1 million, and a lower tax benefit from stock-based compensation of approximately $9.2$11.5 million, ana increaselower tax benefit from U.S. federal research tax credit of state tax expense by $11.8$3.5 million, and offsetother by the effects of othermiscellaneous immaterial tax items of approximately $5.2$2.0 million. The income before income tax provision for the secondthird quarter of fiscal 2026 was $500.2$611.0 million, which is an increase of $125.0$495.9 million or 33.4%.431.0%.
Our quarterly effective income tax rate is based on the estimated annual income tax rate forecast and discrete tax items recognized in the period. The effective tax rate for the three months ended DecemberMarch 31, 2025,2026, is higher than that for the three months ended DecemberMarch 31, 2024,2025, primarily due to a significant decrease in stock-based compensation tax deduction and lower U.S. federal research tax credit because of lower stock vesting price in the three months ended DecemberMarch 31, 2025.2026.
SMCI insider buying and selling (Form 4)
Form 4 filings since 2026-04-11: 0 open-market purchases and 6 open-market sales (about $15.4M; 6 reported as made under a Rule 10b5-1 trading plan), across 35 filings with stock transactions. Awards, option exercises, tax withholding and gifts are listed but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-09-04 | Liang Charles |
Open-market sale |
100,000 | $40.00 | $4.0M |
| 2026-09-04 | Liu Liang Chiu-Chu Sara |
Open-market sale |
100,000 | $40.00 | $4.0M |
| 2026-09-03 | Liang Charles |
Open-market sale |
57,435 | $37.62 | $2.2M |
| 2026-09-03 | Liang Charles |
Open-market sale |
42,565 | $36.60 | $1.6M |
| 2026-09-03 | Liu Liang Chiu-Chu Sara |
Open-market sale |
42,565 | $36.60 | $1.6M |
| 2026-09-03 | Liu Liang Chiu-Chu Sara |
Open-market sale |
57,435 | $37.62 | $2.2M |
| 2026-08-17 | Xiao Jin |
Option exercise | 4,000 | — | — |
| 2026-08-17 | Xiao Jin |
Shares withheld for tax | 1,436 | $38.28 | $55.0K |
| 2026-08-17 | Weigand David E |
Option exercise | 6,500 | — | — |
| 2026-08-17 | Weigand David E |
Shares withheld for tax | 3,308 | $38.28 | $126.6K |
| 2026-08-17 | Thauberger Matthew |
Shares withheld for tax | 1,145 | $38.28 | $43.8K |
| 2026-08-17 | Thauberger Matthew |
Option exercise | 2,250 | — | — |
| 2026-08-17 | Malyala Vikranth |
Option exercise | 6,000 | — | — |
| 2026-08-17 | Malyala Vikranth |
Shares withheld for tax | 3,053 | $38.28 | $116.9K |
| 2026-08-17 | Liang Charles |
Shares withheld for tax | 1,970 | $38.28 | $75.4K |
| 2026-08-17 | Liang Charles |
Option exercise | 3,650 | — | — |
| 2026-08-17 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 1,970 | $38.28 | $75.4K |
| 2026-08-17 | Liu Liang Chiu-Chu Sara |
Option exercise | 3,650 | — | — |
| 2026-08-17 | Cheung Kenneth |
Shares withheld for tax | 808 | $38.28 | $30.9K |
| 2026-08-17 | Cheung Kenneth |
Option exercise | 2,250 | — | — |
| 2026-08-10 | Thauberger Matthew |
Option exercise | 740 | — | — |
| 2026-08-10 | Thauberger Matthew |
Option exercise | 430 | — | — |
| 2026-08-10 | Thauberger Matthew |
Shares withheld for tax | 219 | $31.46 | $6.9K |
| 2026-08-10 | Thauberger Matthew |
Shares withheld for tax | 377 | $31.46 | $11.9K |
| 2026-08-10 | Malyala Vikranth |
Option exercise | 1,138 | — | — |
| 2026-08-10 | Malyala Vikranth |
Shares withheld for tax | 1,074 | $31.46 | $33.8K |
| 2026-08-10 | Malyala Vikranth |
Option exercise | 2,110 | — | — |
| 2026-08-10 | Malyala Vikranth |
Shares withheld for tax | 580 | $31.46 | $18.2K |
| 2026-08-10 | Xiao Jin |
Option exercise | 1,970 | — | — |
| 2026-08-10 | Xiao Jin |
Shares withheld for tax | 707 | $31.46 | $22.2K |
| 2026-08-10 | Xiao Jin |
Option exercise | 1,024 | — | — |
| 2026-08-10 | Xiao Jin |
Shares withheld for tax | 368 | $31.46 | $11.6K |
| 2026-08-10 | Cheung Kenneth |
Option exercise | 1,250 | — | — |
| 2026-08-10 | Cheung Kenneth |
Shares withheld for tax | 1,231 | $31.46 | $38.7K |
| 2026-08-10 | Cheung Kenneth |
Shares withheld for tax | 449 | $31.46 | $14.1K |
| 2026-08-10 | Cheung Kenneth |
Option exercise | 3,429 | — | — |
| 2026-08-10 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 553 | $31.46 | $17.4K |
| 2026-08-10 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 1,139 | $31.46 | $35.8K |
| 2026-08-10 | Liu Liang Chiu-Chu Sara |
Option exercise | 2,110 | — | — |
| 2026-08-10 | Liu Liang Chiu-Chu Sara |
Option exercise | 1,024 | — | — |
| 2026-08-10 | Liang Charles |
Option exercise | 2,110 | — | — |
| 2026-08-10 | Liang Charles |
Shares withheld for tax | 553 | $31.46 | $17.4K |
| 2026-08-10 | Liang Charles |
Option exercise | 1,024 | — | — |
| 2026-08-10 | Liang Charles |
Shares withheld for tax | 1,139 | $31.46 | $35.8K |
| 2026-08-10 | Weigand David E |
Shares withheld for tax | 754 | $31.46 | $23.7K |
| 2026-08-10 | Weigand David E |
Option exercise | 1,480 | — | — |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 276 | $27.65 | $7.6K |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Option exercise | 273 | — | — |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 148 | $27.65 | $4.1K |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Shares withheld for tax | 448 | $27.65 | $12.4K |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Option exercise | 830 | — | — |
| 2026-07-01 | Liu Liang Chiu-Chu Sara |
Option exercise | 510 | — | — |
| 2026-07-01 | Weigand David E |
Option exercise | 2,991 | — | — |
| 2026-07-01 | Weigand David E |
Shares withheld for tax | 550 | $27.65 | $15.2K |
| 2026-07-01 | Weigand David E |
Option exercise | 1,164 | — | — |
| 2026-07-01 | Weigand David E |
Shares withheld for tax | 593 | $27.65 | $16.4K |
| 2026-07-01 | Weigand David E |
Shares withheld for tax | 1,522 | $27.65 | $42.1K |
| 2026-07-01 | Weigand David E |
Option exercise | 1,080 | — | — |
| 2026-07-01 | Weigand David E |
Shares withheld for tax | 2,600 | $27.65 | $71.9K |
| 2026-07-01 | Weigand David E |
Option exercise | 5,110 | — | — |
Well-known investors holding SMCI (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| D. E. Shaw & Co. | 2026-06-30 | 0 | $332.1M | 0.21% | New position |
| Two Sigma Investments | 2026-06-30 | 9,783,845 | $287.0M | 0.22% | Added 979% |
| Renaissance Technologies | 2026-06-30 | 6,785,600 | $199.0M | 0.27% | Added 11324% |
| Millennium Management (Israel Englander) | 2026-06-30 | 3,252,332 | $166.9M | 0.11% | New position |
| D. E. Shaw & Co. | 2026-06-30 | 3,200,000 | $164.2M | 0.1% | New position |
| Two Sigma Investments | 2026-06-30 | 3,153,643 | $163.9M | 0.12% | New position |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 4,755,283 | $139.5M | 0.21% | Added 14760% |
| Soros Fund Management | 2026-06-30 | 2,175,408 | $111.5M | 1.46% | New position |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 3,542,512 | $103.9M | 0.06% | Added 118% |
| D. E. Shaw & Co. | 2026-06-30 | 3,238,600 | $95.0M | 0.06% | Added 784% |
| AQR Capital Management (Cliff Asness) | 2026-06-30 | 2,479,580 | $72.6M | 0.03% | Added 1190% |
| Millennium Management (Israel Englander) | 2026-06-30 | 1,772,969 | $52.0M | 0.04% | Added 266% |
| D. E. Shaw & Co. | 2026-06-30 | 0 | $40.1M | 0.02% | No change |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $29.9M | 0.02% | No change |
| Two Sigma Investments | 2026-06-30 | 0 | $17.1M | 0.01% | No change |
| D. E. Shaw & Co. | 2026-06-30 | 0 | $13.5M | 0.01% | No change |
| Two Sigma Investments | 2026-06-30 | 0 | $11.5M | 0.01% | New position |
| Point72 Asset Management (Steve Cohen) | 2026-06-30 | 0 | $10.9M | — | Sold out |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $7.4M | 0.01% | New position |
| Two Sigma Investments | 2026-06-30 | 0 | $3.9M | 0.0% | No change |
| Bridgewater Associates | 2026-06-30 | 82,317 | $2.4M | 0.01% | Added 11% |
| Millennium Management (Israel Englander) | 2026-06-30 | 0 | $1.5M | 0.0% | No change |
| Gotham Asset Management (Joel Greenblatt) | 2026-06-30 | 38,374 | $1.1M | 0.0% | Reduced 79% |