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Executives

Perry G. Hayes – Senior Vice President and Investor Relations

Charles Liang – Founder, President, Chief Executive Officer and Chairman

Howard Hideshima – Chief Financial Officer

Analysts

Aaron Rakers – Stifel Nicolaus

Mark Kelleher – Dougherty & Company

Rajesh Ghai – Thinkequity

Glenn Hanus – Needham & Company

Super Micro Computer, Inc. (SMCI) F3Q11 Earnings Call April 26, 2011 5:00 PM ET

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Super Micro Computer Incorporated Third Quarter Fiscal 2011 Conference Call. The company’s news release issued early today is available from its website at www.supermicro.com.

In addition, during today’s call the company will refer to a slide presentation that is made available to participants, which can be accessed in a downloadable PDF format on its website at www.supermicro.com in the Investor Relations section under the Events and Presentations tab.

During the company’s presentation, all participants will be in a listen-only mode. Afterwards, securities analysts and institutional portfolio managers will be invited to participate in a question-and-answer session, but the entire call is open to all participants on a listen-only basis.

As a reminder, this call is being recorded today, Tuesday, April 26, 2011. A replay of the call will be accessible until midnight May 10th by dialing 1-877-870-5176 and entering conference ID number 2371871. International callers should dial 1-858-384-5517.

With us today are Charles Liang, Chairman and Chief Executive Officer; Howard Hideshima, Chief Financial Officer; and Perry Hayes, Senior Vice President, Investor Relations.

And now I would like to turn the conference over to Mr. Hayes. Mr. Hayes, please go ahead, sir.

Perry G. Hayes

Good afternoon, and thank you for attending Super Micro’s conference call on financial results for the third quarter fiscal year 2011, which ended March 31, 2011. By now, you should have received a copy of today’s news release that was distributed at the close of regular trading and is available on the company’s website.

As a reminder, during today’s call, the company will refer to a presentation that is available to participants in the Investor Relations section of the company’s website under the Events and Presentations tab. Please turn to slide two.

Before we start, I’ll remind you that remarks include forward-looking statements. There are a number of risk factors that could cause Super Micro's future results to differ materially from our expectations. You can learn more about these risks in the press release we issued earlier this afternoon, our Form 10-K for fiscal 2010, and our other SEC filings. All of these documents are available from the Investor Relations page of Super Micro’s website at www.supermicro.com. We assume no obligation to update any forward-looking statements.

Most of today’s presentation will refer to non-GAAP financial results and outlook. For an explanation of our non-GAAP financial measures, please refer to slide three of this presentation or to our press release published earlier today. In addition, a reconciliation of GAAP to non-GAAP results is contained in today’s press release and in the supplemental information attached to today’s presentation.

I’ll now turn the call over to Charles Liang, Chairman and Chief Executive Officer.

Charles Liang

Thank you, Perry, and good afternoon everyone. Please turn to slide four. First, let me provide you with highlights of our third quarter. We are pleased that our third quarter revenue was $234.3 million or 24% higher year-over-year and 2.7% lower quarter-over-quarter.

Non-GAAP net income was $12.3 million or 37.2% higher year-over-year and 8.1% lower than last quarter. Super Micro’s non-GAAP earnings per share was $0.28 per diluted share compared to $0.21 last year and $0.31 last quarter. Slide five, please.

Now, I would like to share with you some key points regarding our operating performance in the third quarter. We are pleased that we increased our revenue year-over-year by nearly 24% in the March quarter. The March quarter is seasonally our industry’s soft piece quarter, and our strong performance in this quarter indicates that the IT market remains robust and continues to have momentum for our remainder of this calendar year.

In the March quarter, due to the delay of Intel new chip, new single processor reach product. We were impacted by the timing of some key products for complete system solutions, which was strong in the previous quarter. However, we were able to grow other sub systems provision to offset this softness. We expected this demand for system solutions to be bunk in the upcoming quarter due to the enhanced season performance.

We also experienced a additional impact from earthquake in Japan on a limit number of components, which affected some availability and price. For those certain components, we had planned second source and had been working with the supply chain to ensure availability at a basic cost going forward. Also, to a minor extent, we see some reduced revenue from Japan, which impacts our retail during March, but should not be a major factor going forward.

Super Micro also had PG, it will appeal our new X9 generation dual processor and MP product lines including 9S server boards, chassis enclosure, thermal solutions and power supplies as well as a new direct architecture for leveraging Sandy Bridge processor technology. This next generation product lines will be fully optimized for a highly power efficient HPC, cloud, and [data center].

Let me go over some strong results from our key product lines in the March quarter. First, our storage sales grew by almost 50% over our previous year, especially the double-sided storage solutions advanced steadily now for several quarters and more than double from six months ago.

Our storage platforms have been used in data centers and enterprise solutions and our partnership in storage continued to grow. Second, our blade solutions continues to grow this quarter after almost doubling in the previous quarter and are up over 280% from a year ago. This result showed a strong momentum in demand for our operate solutions. Our TwinBlade solution that was launched last quarter had been especially popular due to the superior HD power efficiency and our performance although in a competing breadth.

Third, our March quarter GPU product line had continued to grow from the strong December quarter. This result for March is 81% higher than it was a year ago, which shows that Super Micro technology leadership and innovation in GPU solution is generating demand. Our GPU optimizes product lines in 1U, 2U, 4U and now in blade, provided a high stability available for computational and graphic-intensive applications.

The (inaudible) in the March quarter we see our oversea percentage of revenue continue to grow as a percentage of total revenue. North America revenue was approximately 53%, European revenue was approximately 23% and Asia was above 20%. Now Asia region grew strongly last quarter and is quickly becoming our fastest growing region. Although, our economic scale is [fierce] more in Asia, our operation in this region is huge. We are growing our partnership in China, Japan, Singapore, Korea and India. The China market have been a special focus area for us recently. And we are winning businesses with key customers that will allow us to grow quickly in China.

As an update to our Taiwan investment, we have broken ground on our first phase of our new facility in Taiwan. We expect that this full surface will be complete by the end of this calendar year and will be ready for production by the first quarter of calendar 2012.

Naturally, as we make these investments in our physical infrastructure, we are also building our operating (inaudible) based to support R&D, production, G&A and of course sales and marketing. While we will balance our growth in expense to match our sales growth as much as possible, these investments impact operation expense.

The focus we’ve been given in Asia is showing results and investments we are making including our infrastructure in Taiwan will support this region for years to come. Let me now share with you something about our product line that are gearing up for upcoming quarters.

Slide six and seven please, along with some new development our leading technology include first, our Twin Architecture for IU and 2U platforms continue our technology leadership momentum. The 2U Twin³ will set another highlight in computational (inaudible). Our award winning TwinBlade is in high volume production now featuring 20/28 DP nodes in a 7U Blade with 40 gigabit per second Infiniband or 10G Ethernet connectivity as option.

Our GPU optimized product lines 1U, 2U and 4U and Blade platform provided extreme performance in calculation-intensive applications and have been the most popular GPU server in the market.

While continuing the momentum of leading the market, our next generation low command GPU system including 1U for 4GPU support and 2U for 6GPU support product will be available in the coming May. Our embedded server line featured in low-power, low-noise and some of our [foot print optimizing] for special server appliance and IPC applications. This product line were printed as additional revenues from the new market segment.

Also our 8-way system is a target at high-end enterprise, mission critical applications, which is a need of huge memory capacity and a tremendous configuring power. The system have been shipped to some key financial institutes and university research (inaudible).

Our SuperRack simplify cable management and maximize the air flow for complicated recommend configuration. It also allow easy access from and back optimize for our twin and double-sided architecture. Our 10G for blade (inaudible) in performance and pricing as we enter our 10G Ethernet market.

Finally, our new generation MicroCloud is in prototyping stage now. It has even higher density and higher efficiency design, which is an optimized solution for Web hosting and cloud applications in an extremely low power consumption configuration.

In summary, we are entering the final quarter of our fiscal year; we are confidant that we will have a strong finish. With our storage, blade, GPU, and complete rack solution that Super Micro brand awareness continues to grow in the IT market. We look forward to promoting these product line in the upcoming quarter and beyond.

For more specifics on our third quarter, let me turn it over to Howard.

Howard Hideshima

Thank you, Charles, and good afternoon everyone. I will focus my remarks on earnings, gross margin, operating expenses and similar items on a non-GAAP basis, which reflects adjustments to exclude stock compensation expense.

Reconciliation of GAAP to non-GAAP is included in the financial statements of the company in today’s earnings release and in the supplemental detail in the slide presentation accompanying this conference call.

Let me begin with a review of the third quarter income statement. Please turn to slide eight. Revenue was $234.3 million, up 23.8% from the same quarter a year ago and down 2.7% sequentially. The increase in revenue from last year was due to the continuation of the server refresh cycle and the continuing ramping of our optimized products. The growth on a percentage basis was primarily in blades and GPU solutions.

The sequential decrease in revenue was primarily due to seasonal weakness in the industry and a reduction in OEM and end customer orders from the December quarter. We expect some of the customers to increase orders during the seasonally strong June quarter. On a percentage basis, storage solutions was the highest increase from the prior quarter.

Slide nine. Turning to product mix, the proportion of revenues from server systems was 31.8%, which was a decrease from 33.6% a year ago and 40.5% last quarter. ASP for servers was about $1400 per unit, which is down from about $1500, and $1600 per unit last year and last quarter respectively. The decrease in ASP during the quarter was primarily due to a decrease in volumes with some higher ASP projects from our OEM and end customers. We do expect some of these to return this quarter.

The increase in absolute dollars on our server products from a year ago was primarily due to the increase in shipments across our server product lines. The decrease in absolute dollars of server products sequentially was primarily due to a decrease in shipments of servers primarily to our OEM and end customers. We ship approximately 53,000 servers and 1,156,000 sub systems and accessories in the third quarter. The increase in subsystems and accessories was primarily related to customers purchasing additional inventory during the – due to the potential shortage which Japan earth quake produced during the current quarter similar to what we did during the quarter in building up our inventory to minimize risk of supply chain disruption.

We continue to maintain a diverse revenue base but none of our over 500 customers making up more than 10% of our net sales in the third quarter. Furthermore, 53.6% of our revenues came from the U.S. and 60.5% from our distribution and resellers. Internet data center revenues was 9.6%, which was higher than the prior quarter of 9.4%. Asia and Europe revenue continue to grow faster than the U.S.

Slide 10 and 11. Non-GAAP gross profit was $38.1 million, up 29.6% from $29.4 million in the same quarter last year and down 5.7% from $40.4 million sequentially. On a percentage basis gross margin was 16.2% up from 15.5% a year ago and down from 16.8% sequentially. Price changes from Ablecom resulted in a positive two basis point change to the gross profit in the quarter with total purchases representing approximately 20.3% of total cost of goods sold compared to 19.9% a year ago and 23.1% sequentially.

The sequential decrease in gross margin primarily resulted from a higher percentage of subsystems and accessory revenues as noted earlier which typically sale for less margin and service solutions. This was caused by lower revenues from some of our OEM end customers who order our project basis. We do expect to see some improvement in this quarter.

In addition, we saw some increase in purchases from our partners in subsystems and accessories toward the end of the quarter due to the uncertainty with regards to the impact of the Japanese earthquake on supply. We also have got some additional inventory in some subsystems and accessories in order to minimize the effect of any delay in supply chain caused by the earthquake.

Slide 12, operating expenses were $20.8 million up from $17.3 million in the same quarter a year ago and down from $21.6 million sequentially. As a percentage of revenue, operating expenses was 8.9%, which is lower than 9.1% a year ago and 9% sequentially.

Operating expenses was higher on an absolute dollar basis year-over-year primarily due to additional headcount in R&D and production as the company continues to investment into our product portfolio as well as expand it operations both domestically and overseas.

Sequentially, we saw a decrease in operating expenses primarily related to higher NRE support from our customers for specific optimization to products as well as a reduction in overall bonuses. The optimizations are long aligned for power efficiency, density and cooling which the company is a leader. Headcount increased by 75 sequentially to 1,211 total employees. The increase was primarily in production and R&D.

Operating profit was $17.2 million or 7.3% of revenue, up from $12.1 million or 6.4% of revenues a year ago and down from $18.8 million or 7.8% of revenues sequentially.

During the quarter we broke ground on the first phase of our building expansion in Taiwan, which is scheduled to be completed in late calendar Q4. The expansion of our capabilities will drive our ability to service our customers in that geography as well as help to improve our operational efficiencies around the world. Until then we will be continuing to make investments in infrastructures both facility and headcount to – in order to be able to effectively utilize this new facility when it is completed.

Net income was $12.3 million or 5.2% of revenues up from $8.9 million or 4.7% of revenues a year ago and down from $13.3 million or 5.5% of revenue sequentially. Our non-GAAP fully diluted EPS was $0.28 per share up $0.07 from $0.21 per share a year ago and down $0.03 from $0.31 sequentially.

The number of fully diluted shares used in the third quarter was 43,982,000. The increase in diluted shares from last year was primarily due to impact of options which were previously unrewarded.

The tax rate in the third quarter, on a non-GAAP basis, were 28.3% compared to 25.7% a year ago and 28.3% sequentially. The lower rate a year ago was due to additional R&D tax credits. We expect the effective tax rate on a non-GAAP basis to be approximately 31% for the same quarter.

Turning to the balance sheet on a sequential basis, slide 13, cash and cash equivalents and short and long-term investments were $73.5 million, which is down from $92.7 million in the prior quarter. In the third quarter, free cash flow was a negative $34 million and a net change in cash was a negative $19.1 million. The primary difference between free and net change in cash was due to the purchase of $9 million of land during the quarter, which the company spec financed. The primary cause of the negative – net change in cash was due to the increase in inventory of $19.1 million during the quarter correlates for the increase in forecasted revenues and buffer against disruption of supply of some subsystems and accessories.

Slide 14, accounts receivable increased by $2 million to $79.8 million and DSOs was 31 days, an increase of two days from the prior quarter. Inventories increased by 18 million to 205.6 million with the days in inventories increasing by 14 days to 92 days. Accounts payable decreased by $15.5 million to $128.5 million with the day sales outstanding increasing by 5 days to 64 days primarily due to the increase in inventory. Overall cash conversion cycle was 59 days, an increase of 11 days from the 48 days in the prior quarter.

Now, for a few comments on outlook. As we indicated previously, during the third quarter, we saw seasonally soft quarter for the industry. However, our growth has continued from the prior year especially in Asia and Europe. We expect to see continued ramping of these regions as we add more capabilities there as well as strategically introduce more products based on the latest technologies.

The fourth quarter is typically a seasonally strong quarter and it’s starting stronger than it did prior quarters. Therefore the company currently expects net sales for the quarter ending June 30, 2011 in a range of $245 million to $260 million. Assuming this revenue range, the company expects non-GAAP earnings per diluted share of approximately $0.28 to $0.30 for the quarter. It is currently expected that the outlook will not be updated until the release of the company's next quarterly earnings announcement notwithstanding subsequent developments, however, the company may update the outlook or any portion thereof at any time.

With that let me turn it back to Charles for some closing remarks.

Charles Liang

Thank you, Howard. As we entered the first quarter of our fiscal year, we’re confident that we have a strong quarter to complete the best year in our history. With our strong product line in storage, CPU, and server we’re well positioned to take advantage over the current IT market trends. In addition, we’re growing in all our geography market and especially in Asia. And finally we’re well prepared for upcoming technology change with innovation that will generate a new demand for Super Micro product.

Operator, at this time we’re ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) And we’ll take our first question from Aaron Rakers with Stifel Nicolaus.

Aaron Rakers – Stifel Nicolaus

Yeah, thanks guys. Couple – one question and one follow up, I guess. As far as the effects that you guys had cites in this last quarter, I think it was and the timing of some refreshes or some launches from some of your partners and then also the effect both from Japan component supply as well as Japan as a contribution to revenue. Can you help us bridge the effects there quantitatively, how meaningful those items were?

Charles Liang

Okay, I mean, yes, (inaudible) CPU around today, although that did almost one month. So there is a shift based on the (inaudible). And as for Japan earthquake, yes, we have some component regarding that impact. However, we have (inaudible) resource and also preparing more safety inventory. So pretty much we had no concerns about Japan earthquake anymore but we say that we for sure have a higher inventory that’s trying make sure to no other impact.

Aaron Rakers – Stifel Nicolaus

Okay. And a follow-up from me is on the gross margin line, it would appear that given what you guys are saying about the guidance going into the next quarter, we’re not to assume any kind of real meaningful change in the gross margin line. So first of all, if that’s true – is that true? And then secondly, how should we anticipate the trajectory of gross margin here as you look to continue to ramp your international facilities and importantly looking into 2012 with the Taiwan facility ramp?

Charles Liang

Okay. Like, in last couple of quarters, we share with you our Taiwan investment, right, in facility, in R&D, logistic. That for sure we have created some expense for us in short-term. And however, since improving quarter-after-quarter and now the Asia business have been growing, but in the economies of scale in Asia is very small relatively. So I believe we may need another two to three quarter to get a better economies of scale for Asia.

Aaron Rakers – Stifel Nicolaus

Thank you.

Operator

And next we will hear from Mark Kelleher with Dougherty & Company.

Mark Kelleher – Dougherty & Company

Great, thanks for taking the question. You mentioned that you have some strength in the GPU systems in the quarter, the ASPs on servers came down a bit sequentially. Can you talk about which products drives that ASP up and which drive it down and what were some other dynamics there? I would see some of the Blade servers might have pulled it down a bit.

Howard Hideshima

Yeah, Mark, this is Howard. Like I say we had some projects that Charles alluded to a bit. We also have some customers from OEMs and end customers that delayed. So again we do expect some of those projects come back. I mean we are – the systems can vary from multiple thousands of dollars to less. So, the mix really just change for us from some of those customers.

Mark Kelleher – Dougherty & Company

Okay and here is my follow-up question to you. I ask the inventory built it’s fairly substantial. Can you be more specific on what’s in there? Is that DRAM? What’s in there?

Charles Liang

You are very familiar with these markets. Yes, I mean, there is a tremendous shortage from that Japan earthquake. We are keeping more memory, more hard drive and also more capacitor unless basically a high voltage capacitor to make sure we won’t have a shortage in Q2, I mean June quarter and even in September quarter.

Mark Kelleher – Dougherty & Company

Okay, great. Thanks.

Charles Liang

Thank you.

Operator

(Operator Instructions) Next we will hear from Rajesh Ghai with Thinkequity.

Rajesh Ghai – Thinkequity

Yes, thanks and good afternoon. You mentioned that you expect your systems revenue as a percentage of total revenue to snap back next quarter. Can you just give me the factors that give you the confidence that it will snap back next quarter?

Charles Liang

Okay. I mean again last quarter we have a couple of product line including our 2U storage product and there had been a six in last couple of weeks. So this quarter, I mean June quarter system shipments should be better than last quarter as to how many of it, Howard, do you have an idea?

Howard Hideshima

Rajesh, we stated our long-term goals to be about 50-50 and will be working our way through there. But again as June is a seasonally strong quarter for us. So again last quarter it was a weak quarter, some of the projects that we usually have full service solutions into were not there, they are coming back this quarter.

Rajesh Ghai – Thinkequity

Okay. And as the list of pricing, can you talk about the pricing dynamics that you see at this point of time both for your product as well for components specifically memory and hard disk drives? Thank you.

Charles Liang

Not much, but again to prevent shortage may happen right. So, we keep a higher inventory level and therefore sure we pay a little higher, again not too much higher.

Rajesh Ghai – Thinkequity

And in terms of pricing comparatively, compared to your competitors?

Charles Liang

I believe our economical scale, still relatively are smaller than our main competitor and that’s why we have been consistently growing our share. And last year, we grew 43%, this year which we foresee a good year in much share growth as well, including our investment in Asia, not only try to grow our market share. So that long-term we would be stronger in purchase and buying power.

Rajesh Ghai – Thinkequity

Thank you.

Operator

And next we’ll hear from Glenn Hanus with Needham & Company.

Glenn Hanus – Needham & Company

Hi, guys. Let me just take another crack at the – can you give us a sense of the – I mean, data center spending is pretty strong, you came in at the low-end of the range, should we assume that absent the delays in Sandy Bridge that you might have been towards the upper end of your range based on demand or is that too positive?

Howard Hideshima

No, I don’t think that’s too positive at all. I think some of the things that Charles reiterated here, and we reiterate it with regards to delays caused. Again, we’re talking, our range is about – we’re at 134, we’re at 135 to 145, I mean, take a look at that, that’s not far off. So some of these delays obviously would have put us right in there.

Glenn Hanus – Needham & Company

And then the delays to date more impact the complete system solutions rather than the components, did the delay impact the mix in effect between solutions and components? Can you just help me understand that better?

Howard Hideshima

Yeah, if you look at our mix again, you saw that our systems revenues as a percent of our overall business went down from the December quarter to the March quarter. So again, I would put the impact more on that side of the fence.

Glenn Hanus – Needham & Company

Yeah. I understand that. What I’m asking is did the Intel delay create that change in mix?

Charles Liang

No. Indeed the major reason our ASP dropped because some key (inaudible) and we believe we will be purchasing in June quarter again. So March quarter somehow, yes, have a minimal order.

Glenn Hanus – Needham & Company

Okay. Thanks.

Operator

(Operator Instructions) And we’ll take a follow-up question from Aaron Rakers with Stifel Nicolas.

Aaron Rakers – Stifel Nicolaus

Yeah, can you guys – just a follow-up on the Sandy Bridge stuff, can you talk a little bit about how we should think about the [DRAM] transition as we look out over the next couple of quarters from a timing perspective and any thoughts of how we should think about that from a margin profile perspective?

Charles Liang

Yeah, I mean, our Intel Sandy Bridge by virtue is a big product line and whenever there are big product launch from our partner Nexenta, we have good chance for Super Micro to grow, because we’re now in new product trend to market. So, basically Sandy Bridge would be in production by Q4, I mean December quarter, but we’re kind of aggressively preparing for a product. So, basically maybe what I’ll say June is our traditional strong quarter and then second half of this year with Sandy Bridge launch for sure will be a good quarter for us.

Aaron Rakers – Stifel Nicolaus

And then another question on the storage side of the business, obviously you’ve been talking about that and that growing quite rapidly. Are we a quarter or two away before you start to actually breaking that out? And on that topic, have you seen any effect from some of recent consolidation things going on in the storage industry, in particular NetApp buying LSI, have you engaged in new customer opportunities as it relates to that?

Charles Liang

We have a very broad customer base for storage product. So basically the acquisition activity a couple – a few company in last two quarters, basically I would say no impact to us.

Aaron Rakers – Stifel Nicolaus

Okay.

Charles Liang

Our growth pretty much depends on our strong product line.

Aaron Rakers – Stifel Nicolaus

Okay. Thank you.

Operator

And next we’ll have a follow-up question from Rajesh Ghai with Thinkequity.

Rajesh Ghai – Thinkequity

Yes, thanks. So turning to your guidance, Howard, if I take the midpoint of your revenue and your midpoint of the EPS and back out operating margin, it comes to almost flat with last quarter. Can you kind of spread out the operating margin – operating expenses and gross margin assumptions for next quarter? If I understand, systems doesn’t – in your mix is going to go up and how does that kind of – how do you get to a flat operating margin with higher gross margin potentially?

Howard Hideshima

I believe, again, June quarter should be stronger to us, that’s tradition, all right. However, because of the earthquake in Japan, we still try to be conservative in case any shortage may happen. Otherwise, June quarter should be stronger than March quarter to us for sure.

Rajesh Ghai – Thinkequity

Okay. And on the Netherlands facility, you mentioned Europe was strong. I’m just wondering what the utilization rate is at this point of time for your Netherlands facility? Is it 50% or more and have you seen any impact on – positive impact on gross margin as a result of the elimination of freight cost to Europe?

Howard Hideshima

Yeah, they’re both, Netherlands and Taiwan facility still under economies of scale and that’s why our Q1, we got some impact and the good thing is those utilization will consistently improve quarter-over-quarter.

Rajesh Ghai – Thinkequity

And the Taiwan facility should be ramping by the end of June this year, is that the right information that I have?

Howard Hideshima

Taiwan, it is – also need to be more patient because our investment in Taiwan is very huge and long-term. I would rather say (inaudible) will be completed by December quarter and then next year we would see a better economies of scale for sure.

Rajesh Ghai – Thinkequity

Okay. And when does Intel start its Sandy Ridge DP allocation, is it September quarter or could it be – it’s in the September quarter, but is it going to be end of September or is it going to be earlier in that quarter?

Charles Liang

I believe the high volume will be Q4.

Rajesh Ghai – Thinkequity

Q4, okay. Thank you so much.

Charles Liang

Thank you.

Operator

And we’ll take our next follow-up question from Glenn Hanus with Needham & Company.

Glenn Hanus – Needham & Company

As you look at your Internet data center business, would you foresee that (inaudible) this 9% range for couple of quarters, would you – as we look out into next fiscal year, would you foresee that growing into double-digits?

Howard Hideshima

I believe we will be consistently growing (inaudible).

Glenn Hanus – Needham & Company

I’m sorry. I just – I didn’t understand.

Howard Hideshima

I guess will be double-digit very soon.

Glenn Hanus – Needham & Company

Okay, okay. Howard, back on operating expenses, I mean, I had modeled up this quarter sequentially in OpEx, it looks like you came in under in all my categories, did – was that just a function of revenues or was – is there something that changed during the quarter in your operating expense expansion?

Howard Hideshima

Again, two areas. One is we spend a lot of AFO and resource in developing Sandy Bridge for the big launch that will happen in Q4. And secondly, our growing expense in Asia to make sure our foundation in Asia is strong enough.

Glenn Hanus – Needham & Company

Okay, thank you.

Operator

And it appears at this time, we have no further questions. I’d like to turn the call back over to Mr. Liang for any additional or closing remarks.

Charles Liang

Thank you for joining us today and we’re looking forward to talking to you again at the end of this quarter. Thank you everyone. Have a great day.

Operator

Thank you, ladies and gentlemen. That does conclude the Super Micro third quarter fiscal year 2011 conference call. We do appreciate your participation. You may now disconnect at this time. Thank you.

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