What changed in this filing

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Item 1. Business

2022-08-29 compared with 2021-08-27 · 81 added, 43 removed, 163 unchanged (43% of the section changed)

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 are a Silicon Valley-based provider of accelerated compute platforms that are 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, which we refer to as Total IT 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 scale solutions, networking devices, server sub-systems, system management and security software.

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

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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.

Our in-house design competencies, design control over 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 our compute platforms along with our 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.

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We believe our approach of leveraging an overall architecture that balances data center power requirements, cooling, shared resources and refresh cycles helps the environment and provides total cost of ownership (“TCO”) savings for our customers.

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 operate through a combination of our direct sales force and indirect

sales channel partners.

SMCI | 2022 Form 10-K | 1

We conduct our operations principally from our Silicon Valley headquarters, Taiwan and Netherlands facilities.

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.

Achieving this objective requires continuous development and innovation of our solutions with better price-performance and architectural advantages compared with our prior generation of solutions and with solutions offered by our competitors.

Our objective is to be the world’s leading provider of solutions using accelerated compute platforms that are application-optimized offering high-performance server, storage and networking.

Achieving this objective requires continuous development and innovation of our Total IT Solutions with better price-performance and architectural advantages compared with our prior generation of solutions and with solutions offered by our competitors.

Through our strategy, we seek to maintain or improve our relative competitive position in many product areas and pursue markets that provide us with additional long-term growth opportunities.

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We are continually investing in our engineering organization.

As of June 30, 2021, we employed over 1,800 persons in our research and development organization.

As of June 30, 2022, we had over 2,000 employees in our research and development organization.

These resources, along with our understanding of complex computing and storage requirements, enable us to deliver product innovation featuring advanced functionality and capabilities required by our customers.

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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 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.

In November 2021, we announced the Universal GPU server;

which enables customers to choose the most suitable CPUs and GPUs, and switch configurations for their specific applications and workloads.

In February 2022, we introduced the SuperEdge multi-node Server for 5G, IoT, and edge applications.

This 2U, 3-node, short-depth design increases node density by 50% for high-density computing at the intelligent edge.

Capitalizing on New Applications and Technologies

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Leveraging Our Global Operating Structure

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 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.

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

SMCI | 2022 Form 10-K | 2

Products and Services

We offer a broad range of application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories, which can be used to build complete server and storage systems.

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 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.

We offer a broad range of accelerated compute platforms that are application-optimized server solutions, rackmount and blade servers, storage, and subsystems and accessories, which can be used to build complete server and storage systems.

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

The percentage of our net sales represented by sales of server and storage systems increased to 85.9% in fiscal year 2022 compared to 78.4% in fiscal year 2021 and 78.5% in fiscal year 2020, and the percentage of our net sales represented by sales of subsystems and accessories was 14.1% in fiscal year 2022, 21.6% in fiscal year 2021 and 21.5% in fiscal year 2020.

During fiscal year 2022, we experienced increased revenue from server and storage systems, particularly from our large enterprise and datacenter customers.

The year-over-year decrease in net sales of subsystems and accessories was primarily due to the emphasis of selling full systems and servers which require utilization of the subcomponents.

We complement our accelerated compute platforms inclusive of server and storage system offerings with software management/security solutions, 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, multi-node and embedded form factors, which support single, dual, and multiprocessor architectures.

We sell accelerated compute platforms comprised of a combination of 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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• 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.

These subsystems are the foundation of our server solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market.

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

These subsystems are the foundation of platform solutions and span product offerings from the entry-level single and dual-processor server segment to the high-end multiprocessor market.

The majority of the subsystems and accessories we sell individually are designed to work together to improve performance and are ultimately integrated into complete server and storage systems.

Server Software Management Solutions

Our open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (“SSM”), Supermicro Power Management software (“SPM”), Supermicro Update Manager (“SUM”), and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments.

Our open industry-standard remote system management solutions, such as our Server Management suite, including Supermicro Server Manager (“SSM”), Supermicro Power Management software (“SPM”), Supermicro Update Manager (“SUM”), SuperCloud Composer and SuperDoctor 5, have been designed to help manage large-scale heterogeneous data center environments.

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Supermicro Global Services

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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.

We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our solutions.

We continue to invest in reducing our design and manufacturing costs and improving the performance, cost-effectiveness and power- and space-efficiency of our Total IT Solutions.

Our research and development teams focus on the development of new and enhanced products that can support emerging technological and engineering innovations while achieving high overall system performance.

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Similarly, we work very closely with our customers to identify their needs and develop our new product plans accordingly.

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

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

During each of fiscal year 2022 and fiscal year 2021, we sold to over 1,000 direct customers in over 100 countries.

During fiscal year 2020, we sold to over 820 direct customers.

In addition, over the three years ended June 30, 2022, we have sold to thousands of end users through our indirect sales channel.

These customers represent a diverse set of market verticals including enterprise data centers, cloud computing, artificial intelligence, 5G and edge computing markets.

In fiscal years 2021, 2020 and 2019, no customer represented greater than 10% of our total net sales.

In each of fiscal years 2022, 2021 and 2020, no customer represented greater than 10% of our total net sales.

Sales and Marketing

Our sales and marketing activities are conducted through a combination of our direct sales force and our indirect sales channel partners.

Our direct sales force is primarily focused on selling complete systems and solutions, including management software and global services to large scale cloud, enterprise and OEM customers.

Our direct sales force is primarily focused on selling Total IT Solutions, including management software and global services to large scale cloud, enterprise and OEM customers.

In addition, we are planning to offer optimized products with our command-center-based services, starting with a comprehensive product auto-configurator.

The command center is the foundation of our expanding B2C and B2B programs.

We work with distributors, value-added resellers, system integrators, and OEMs to market and sell our optimized solutions to their end customers.

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We leverage our relationships in our indirect sales channel and with our OEMs to penetrate select industry segments where our products can provide better alternatives to existing solutions.

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We maintain close contact with our indirect sales channel partners and end customers.

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International Sales

Our global sales efforts are supported both by our international offices in the Netherlands, Taiwan, United Kingdom, China and Japan as well as by our United States based sales team.

Our global sales efforts are supported both by our international offices in the Netherlands, Taiwan, South Korea, United Kingdom, China and Japan as well as by our United States based sales team.

Product fulfillment and first level support for our international customers are provided by Supermicro Global Services and through our indirect sales channel and OEMs.

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We manufacture the majority of our systems at our San Jose, California headquarters.

We believe we are the only major server and storage vendor that designs, develops, and manufactures a significant portion of their systems in the United States.

We believe we are the only major server, storage and accelerated compute platform vendor that designs, develops, and manufactures a significant portion of their systems in the United States.

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

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See Part II, Item 8, Note 12, “Related Party Transactions,” to the consolidated financial statements and Part III, Item 13, “Certain Relationships and Related Transactions and Director Independence.”

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We monitor our inventory continuously to be able to meet customer delivery requirements and to avoid inventory obsolescence.

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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

Government Regulation

Our worldwide business activities subject us to various federal, state, local, and foreign laws in the countries in which we operate, and our Total IT Solutions are subject to laws and regulations affecting their sale.

To date, costs and accruals incurred to comply with these governmental regulations, including environmental regulations, have not been material to our capital expenditures, results of operations, and competitive position.

Although there is no assurance that existing or future governmental laws and regulations, including environmental regulations, applicable to our operations or Total IT Solutions will not have a material adverse effect on our capital expenditures, results of operations, and competitive position, we do not currently anticipate material increases in expenditures for compliance with government regulations.

Human Capital Resources and Management

Mission, Culture, and Engagement

“The key to success in technology is designing a company around people committed to work that they love,” said Charles Liang, Supermicro Founder, President, Chief Executive Officer, and Chairman of the Board.

We aim to attract, develop, and retain a high performing and engaged global workforce.

As of June 30, 2022, we employed 4,607 full time employees, consisting of 2,089 employees in research and development, 525 employees in sales and marketing, 456 employees in general and administrative and 1,537 employees in manufacturing.

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Our employees are not represented by any collective bargaining organization, and we have never experienced a work stoppage.

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.

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We are committed to protecting the environment through our “We Keep IT Green” initiative as a first to market innovator in high-performance, high-efficiency server, storage, networking and management total solutions.

We recognize the critical importance of talent and culture to our success and ability to fulfill this vision.

We encourage opportunities for growth and conduct regular performance reviews that set clear expectations to motivate employees and align their performance with company objectives.

Supermicro Portal, our internal intranet, was created to keep employees informed about key changes to our business and company-wide resources.

Diversity, Equity, Inclusion, and Belonging

We strive to create a culture that promotes diversity, equity, inclusion, and belonging to boost team dynamics, productivity, and innovation within the organization.

Employees should be treated fairly and respectfully despite differences and should feel accepted in the workplace to contribute their perspective and be valued.

We are committed to increasing diversity in our workforce at all levels and regularly monitor our recruitment process with an aim to improve the diversity of our workforce and candidate pool.

Talent Development, Acquisition, Retention and Rewards

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.

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

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

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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

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

Health, Safety & Wellness

Throughout our history, we have maintained our commitment to providing a safe workplace that protects against and limits personal injury and environmental harm.

We follow international standards and regulations for product safety and security.

Our health and safety programs emphasize personal accountability, professional conduct, and regulatory compliance, while our culture fosters a sense of proactivity, caution, and communication.

In the development of our products, we define and perform various tests to ensure Product Safety and Security.

We evaluate risks using both government-required procedures and best practices to ensure we understand residual risk and appropriately protect our employees.

We engage in proactive efforts to prevent occupational illnesses and injuries which allows us to maintain a safe, healthy, and secure workplace.

We have a Safety Committee, which is designed to promote communications regarding health, safety, and emergency response procedures and to help implement improvements to our work areas and practices.

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We are committed to complying with applicable laws, including those associated with labor and employment, across all areas of our operations.

In addition, we abide by global standards, irrespective of legal requirements, regarding the treatment of workers such as those detailed by the Responsible Business Alliance (“RBA”).

These include prevention of excessive working hours and unfair wages, controls to prohibit child labor and human trafficking and bolstering workplace health and safety measures.

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 are following government policies and recommendations designed to slow the spread of COVID-19 and are committed to the health and safety of anyone in our facilities.

To respond to the COVID-19 pandemic, we implemented the following precautions:

• We require that on-site employees and visitors complete a daily health questionnaire, provide thermometers in all buildings, and adhere to social distance requirements, mask protocols and our internal vaccination mandate;

• We exclude employees who test positive for COVID-19 from the workplace, conduct contact tracing, provide self-tests for employee surveillance, disinfect common areas daily and carry out weekly fogging of each building, minimize non-priority business travel, and provide personal HEPA air purifiers for each employee;

• To respond to changing COVID-19 updates, we work closely with our Environmental Health and Safety team to monitor and periodically update our policies.

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

Board Oversight of Human Capital Management

Our Board of Directors, as a part of its overall responsibility to provide oversight, has purview over matters related to human capital management.

Our Compensation Committee provides oversight of various matters related to human capital management, such as incentive compensation plans and equity compensation plans and the administration of such plans, compensation matters outside of the ordinary course, and compensation policies.

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.

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.

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Additionally, during the fiscal year 2022, the computer server industry experienced 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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The SEC also maintains a website that contains our SEC filings.

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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