What changed in this filing

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Item 1. Business

2021-08-27 compared with 2020-08-31 · 58 added, 31 removed, 148 unchanged (38% of the section changed)

We are a Silicon Valley-based provider of application-optimized high performance and high-efficiency server and storage systems for a variety of markets, including enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing.

Our solutions include complete servers, storage systems, modular blade servers, blades, workstations, full racks, networking devices, server management software, and server sub-systems.

We are a Silicon Valley-based provider of application-optimized high-performance and high-efficiency server and storage systems for various markets, including enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing.

Our solutions include complete servers, storage systems, modular blade servers, blades, workstations, complete rack scale plug and play solutions delivering pre-defined and pre-tested full rack solutions, networking devices, system management software, and server sub-systems.

We also provide global support and services to help our customers install, upgrade and maintain their computing infrastructure.

We offer our customers a high degree of flexibility and customization by providing a broad array of server configurations from which they can choose the best solutions to fit their computing needs.

Our server and storage systems, subsystems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability.

Our in-house design competencies, control of design of many of the components used within our server and storage systems, and our Server Building Block Solutions® (an innovative, modular and open architecture) enable us to rapidly develop, build and test server and storage systems, subsystems and accessories with unique configurations.

We offer our customers a high degree of flexibility and customization by providing a broad array of server models and configurations from which they can choose the best solutions to fit their computing needs.

Our server and storage systems, sub-systems and accessories are architecturally designed to provide high levels of reliability, quality, configurability, and scalability.

Our in-house design competencies, design control of many of the components used within our server and storage systems, and our Server Building Block Solutions® (an innovative, modular and open architecture) enable us to rapidly develop, build and test server and storage systems, sub-systems and accessories with unique configurations.

As a result, when new technologies are brought to market, we are generally able to quickly assemble a broad portfolio of solutions by leveraging common building blocks across product lines.

We work closely with the leading microprocessor, graphics processing units (“GPU”), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate the design of our new products with their product release schedules.

This enhances our ability to rapidly introduce new products incorporating the latest technology.

We seek to be first to market with products incorporating new technologies and to offer the broadest selection of products using those technologies to our customers.

In order to reduce the high cost of operating datacenters, IT managers increasingly turn to suppliers of high-performance products that are also cost-effective, energy-efficient, and green.

We work closely with the leading microprocessor, graphics processing units (“GPU”), memory, disk/flash, and interconnect vendors and other hardware and software suppliers to coordinate our new products' design with their product release schedules.

This enhances our ability to introduce new products incorporating the latest technology rapidly.

We seek to be the first to market with products incorporating new technologies and to offer the broadest selection of products using those technologies to our customers.

To reduce the high cost of operating datacenters, IT managers increasingly turn to suppliers of high-performance products that are also cost-effective, energy-efficient, and green.

Our resource saving architecture supports our efforts to lead in green IT innovation.

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We conduct our operations principally from our Silicon Valley headquarters in California and in our Taiwan and the Netherlands facilities.

Our sales and marketing activities are conducted through a combination of our direct sales force and

indirect sales channel partners.

In our indirect sales channels, we work with distributors, value-added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers.

Our sales and marketing activities operate through a combination of our direct sales force and indirect

sales channel partners.

We work with distributors, value-added resellers, system integrators, and original equipment manufacturers ("OEMs") to market and sell our optimized solutions to their end customers in our indirect sales channels.

Our objective is to be the world’s leading provider of application-optimized, high-performance server, storage and networking solutions.

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This allows us to offer customers a broad choice of products to match their target application requirements.

For example, in early February 2020, we introduced over 100 new systems in support of Intel’s introduction of its second-generation Xeon Scalable processor.

For example, in early April 2021, we introduced over 100 new application optimized systems in support of Intel’s introduction of its 3rd Gen Intel Xeon Scalable processors.

In March 2021, Supermicro announced one of the most versatile portfolio of AMD EPYC™ 7003-based systems delivering world record performance – 36% improvement -- for today’s most critical workloads.

Capitalizing on New Applications and Technologies

In addition to serving traditional needs for server and storage systems, we have devoted, and will continue to devote, substantial resources to developing systems that support emerging and growing applications including cloud computing, artificial intelligence, 5G/edge computing and others.

We believe there are significant opportunities for us in each of these rapidly developing markets due to stringent design requirements for these applications that often require the use of the latest technologies, allowing us to leverage our capabilities in product innovation, superior time-to-market, and portfolio breadth.

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We seek to grow our global enterprise revenue by bolstering and expanding our software management products and support services.

These software products and services are important because the uptime requirements and need to extend the functionality of computing infrastructure are a high priority for enterprise customers.

These software products and services are required for large scale deployments, help meet service level agreements and address uptime requirements.

In addition to our internal software development efforts, we also integrate and partner with external software vendors to meet customer requirements.

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We plan to continue to increase our worldwide manufacturing capacity and logistics abilities in the United States, the Netherlands and Taiwan to more efficiently serve our customers and lower our overall manufacturing costs.

We have recently started to increase our manufacturing capacity in Taiwan to diversify our operating base and optimize relatively low labor costs as compared to the United States.

In addition, Taiwan has been less affected by COVID-19, which makes it a well-suited manufacturing location for our Asia and export operations and will also lower our logistics costs.

We have recently completed the construction of a new 749,000 square feet building in Taiwan to increase our manufacturing capacity and diversify our operating base and optimize relatively low labor costs as compared to the United States.

In addition, we have added a new building devoted to manufacturing at our San Jose, California headquarters.

Products and Services

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These solutions and products are designed to serve a variety of markets, such as enterprise data centers, cloud computing, artificial intelligence (“AI”), 5G/edge computing.

The percentage of our net sales represented by sales of server and storage systems decreased to 78.5% in fiscal year 2020 from 81.7% in fiscal year 2019 and from 79.3% in fiscal year 2018 , and the percentage of our net sales represented by

sales of subsystems and accessories was 21.5% in fiscal year 2020 , 18.3% in fiscal year 2019 and 20.7% in fiscal year 2018 .

The percentage of our net sales represented by sales of server and storage systems was flat in fiscal year 2021 compared to fiscal year 2020 and decreased to 78.5% in fiscal year 2020 from 81.7% in fiscal year 2019, and the percentage of our net sales represented by sales of subsystems and accessories was 21.6% in fiscal year 2021, 21.5% in fiscal year 2020 and 18.3% in fiscal year 2019.

We complement our server and storage system offerings with software management solutions as well as global services and support, the revenue for which is included in our server and storage systems revenue.

Server and Storage Systems

We sell server and storage systems in rackmount, blade, and multi-node form factors, which support single, dual, and multiprocessor architectures.

We sell server and storage systems in rackmount, blade, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures.

Our key product lines include:

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• Ultra Server systems for demanding enterprise workloads;

GPU or Accelerated systems;

Data Center Optimized server systems that deliver increased performance-per-watt with an improved thermal architecture;

MicroCloud server systems that deliver high performance in environments with space and power constraints.

• GPU or Accelerated systems for rapidly growing AI markets;

• Data Center Optimized server systems that deliver increased scalability and performance-per-watt with an improved thermal architecture;

• Embedded (5G/IoT/Edge) systems optimized for evolving networks and intelligent management of connected devices;

• MicroCloud server systems that deliver node density in environments with space and power constraints.

In addition to our complete server and storage systems business, we offer a large array of modular server subsystems and accessories, such as server boards, chassis, power supplies and other accessories.

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Research and Development

We perform the majority of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the

development process and reducing time-to-market.

We perform most of our research and development activities in-house in the United States at our facilities in San Jose, California, and in Taiwan, increasing the communication and collaboration between design teams to streamline the development process and reduce time-to-market.

We believe that the combination of our focus on internal research and development activities, our close working relationships with customers and vendors and our modular design approach allows us to decrease time-to-market.

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During fiscal year 2021, we sold to over 1,000 direct customers in over 100 countries.

During each of fiscal year 2019 and 2018, we sold to over 850 direct customers.

During each of fiscal years 2020 and 2019, we sold to over 820 and 850 direct customers respectively.

In addition, over the three years ended June 30, 2021 we have sold to thousands of end users through our indirect sales channel.

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Global assembly, test and quality control of our servers are performed at our manufacturing facilities in San Jose, California, Taiwan and the Netherlands.

Each of our facilities has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards.

Each of our facilities Quality and Environmental Management System has been certified according to ISO 9001, ISO 14001 and/or ISO 13485 standards.

Our suppliers and contract manufacturers are required to support the same standards to maintain consistent product and service quality and continuous improvement of quality and environmental performance.

We use several third-party suppliers and contract manufacturers for materials and sub-assemblies, such as serverboards, chassis, disk drives, SSDs, power supplies, fans and computer processors.

We use several third-party suppliers and contract manufacturers for materials and sub-assemblies.

We believe that selectively using outsourced manufacturing services allows us to focus on our core competencies in product design and development and increases our operational flexibility.

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We believe our principal competitors include:

Global technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, Huawei, and Lenovo;

ODMs, such as Inspur, Quanta Computer, and Wiwynn Corporation.

• Global technology vendors, such as Cisco, Dell, Hewlett-Packard Enterprise, and Lenovo;

• ODMs, such as Foxconn, Quanta Computer, and Wiwynn Corporation.

• OEMs, such as Inspur

The principal competitive factors in our market include the following:

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• Interoperability of products;

• Scalability;

• Localized and responsive customer support on a worldwide basis.

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See Part I, Item 1A, "Risk Factors" risk titled “The market in which we participate is highly competitive, and if we do not compete effectively, we may not be able to increase our market penetration, grow our net sales or improve our gross margins.”

Employees and Human Capital Resources

As of June 30, 2021, we employed 4,155 full time employees, consisting of 1,858 employees in research and development, 460 employees in sales and marketing, 425 employees in general and administrative and 1,412 employees in manufacturing.

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We believe that our relations with our employees are good.

“The key to success in technology is designing a company around people committed to work that they love”, quote from Charles Liang, our President, Chief Executive Officer and Chairman.

We are motivated to attract, develop and retain a high performing team engaged in work that they love, motivated by growth opportunities.

Talent Strategy

Our talent strategy focuses on attracting skilled, engaged employees who contribute the talent and skills critical to our innovative and forward-looking workforce.

Our recruiting process actively sources talent supporting our ability to hire candidates with professional qualifications and potentials.

We identify opportunities through tracking and analyzing data from various sources such as annual performance reviews to assess our progress in ensuring critical talents are in critical roles.

It is our policy to ensure equal employment opportunity for all applicants and employees without regard to prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation), national origin, age, disability or genetic information, marital status or any other classification protected by applicable local, state or federal laws.

All employees receive training in the prevention of sexual harassment and abusive conduct in the workplace.

Total Rewards Program

Our total rewards program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders.

We provide employees with compensation packages that include base salary, incentive bonus programs, and long-term equity awards, including restricted stock units and options, tied to the value of our stock price.

We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans.

In addition to cash and equity compensation, we also offer U.S.

employees benefits such as life and health (medical, dental & vision) insurance, paid time off, sick leave, holiday pay, and a 401(k) plan.

Outside of the U.S., we provide benefits based on local requirement and needs.

Health & Safety

From the start of the COVID-19 pandemic, we proactively implemented preventative protocols, which we continuously assess and update for changes in conditions and applicable regulations.

These preventative protocols are intended to safeguard our employees, contractors, suppliers, customers, and communities, and to ensure business continuity.

following government policies and recommendations designed to slow the spread of COVID-19 and are committed to the health and safety of our employees, contractors, suppliers, customers, and communities.

We continuously assess our efforts to respond to the COVID-19 pandemic, which include the following:

• We require that on-site employees complete a daily health questionnaire, pass through thermal scanning equipment installed in some of our buildings to ensure they do not have an elevated body temperature, and adhere to social distance requirement and mask protocols;

• We have enhanced our contact tracing, significantly decreased non-priority business travel, and provided personal air purifier for each of the employees;

• To respond to changing COVID-19 updates, we continue to work closely with our Environmental Health and Safety team to monitor and provide weekly updates to managers and promote and encourage employees to receive COVID-19 vaccinations.

We believe these actions are appropriate and essential to safeguard our employees, contractors, suppliers, customers, and communities while allowing us to safely continue operations.

Corporate Information

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We generally maintain substantial inventories of our products because the computer server industry is characterized by short lead-time orders and quick delivery schedules.

As a result, we do not have a significant backlog of unfilled customer orders.

Additionally, during the fiscal year 2021, the computer server industry is experiencing global supply chain shortage, which requires us to carry more inventories to fulfill our customers and partners’ demands and backlogs.

Available Information

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business