What changed in this filing

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Item 1A. Risk Factors

2025-02-25 compared with 2023-08-28 · 608 added, 359 removed, 309 unchanged (76% of the section changed)

The risks and uncertainties described below are not the only ones facing us.

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’s Discussion and Analysis of Financial Condition and Results of Operations” 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.

Risk Factor Summary

The following is a summary of the most significant risks and principal factors that make an investment in our common stock speculative or risky.

Risks Related to our Delinquent SEC Reporting Obligations

• Circumstances discussed in the Explanatory Note in this Annual Report;

• Our failure in timely filing our SEC reports;

• The outcome of litigation and other legal proceedings, disputes, claims, as well as regulatory examinations, investigations, proceedings and orders arising out of the circumstances discussed in the Explanatory Note in this Annual Report, and any orders, actions or rulings not in our favor;

• Significant expenses related to the circumstances discussed in the Explanatory Note in this Annual Report;

• The remediation of material weaknesses and deficiencies in our internal control over financial reporting and disclosure controls and procedures, and any resulting litigation;

• The absence of timely and accurate financial information has hindered and may in the future hinder our ability to effectively manage our business and the ability to issue stock-based compensation to our employees;

• Our availability to access outside financing;

• Negative publicity and potential customers’ concerns;

Operational and Execution Risks

• Adverse economic conditions may harm our business.

• Recent events in eastern Europe and the Taiwan Strait present challenges and risks to us, and no assurances can be given that current or future developments would not have a material adverse effect on our business, results of operations and financial condition.

• Our quarterly operating results have fluctuated and will likely fluctuate in the future.

• Our revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results.

• As we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings may be higher with effects on our cash flow, we are exposed to inventory risks, and our sales may be less predictable.

• If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value.

• We may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth.

• Increases in average selling prices for our Total IT Solutions have historically significantly contributed to increases in net sales in some of the periods covered.

Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.

• Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.

• We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.

• Difficulties we encounter relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely impact our controls environment.

• System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could disrupt our internal operations or compromise the security of our products, and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.

• Any failure to adequately expand or retain our sales force will impede our growth.

• Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations.

• Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.

• 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.

• If we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee, we may not be able to implement our business strategy in a timely manner.

• Our direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.

• If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.

Strategic and Industry Risks

• If we do not successfully manage the expansion of our international manufacturing capacity and business operations, our business could be harmed.

• We may not be able to successfully manage our business for growth and expansion.

• Our growth into markets outside the United States exposes us to risks inherent in international business operations.

• We depend upon the development of new products & enhancements to existing products.

If we fail to predict or respond to emerging technological trends & our customers’ changing needs, our operating results and market share may suffer.

• Volatility of our quarterly operating results;

• Our ability to meet publicly announced financial guidance or other expectations about our business;

• Timely development of new products and enhancements to our existing products;

• Our ability to maintain sufficient inventory;

• Shortfall in revenue or decline in margins;

• The exercise of security interests we take in products sold;

• Concentration of our customer base;

• Our ability to secure additional financing on favorable terms;

• Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner;

• Our ability to enhance or upgrade our enterprise resource planning (“ERP”) systems and other IT applications, including challenges related to automating internal controls utilizing our ERP systems and maintaining internal controls over processes in other IT applications;

• Increases in average selling prices for our solutions;

• Changes in U.S.

or foreign policies, geopolitical conditions, general economic conditions, and other factors beyond our control;

• System security violations, data protection breaches, cyber-attacks, and other related cyber-security issues;

• Failure to adequately expand or retain our sales force;

• Potential conflicts of interest with Ablecom and Compuware;

• Our reliance on a limited source of contract manufacturing services and inventory warehousing;

• Our ability to attract and retain key personnel;

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• The market in which we participate is highly competitive.

• Industry consolidation may lead to increased competition and may harm our operating results.

• We must work closely with our suppliers to make timely new product introductions.

• Our suppliers’ failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers.

• We rely on a limited number of suppliers for certain components used to manufacture our products.

• We rely on indirect sales channels and any disruption in these channels could adversely affect our sales.

• Our failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.

• Our results of operations may be subject to fluctuations based upon our investment in corporate ventures.

• Our direct sales efforts and relationships with our indirect sales channel and with our OEMs;

• Our ability to maintain good publicity with respect to us, our employees, our third-party service providers or our partners;

Strategic and Industry Risks

• Our ability to work with suppliers to make timely new product introductions;

• Our ability to manage our business for growth and expansion, including the expansion of our international manufacturing capacity and business operations;

• Our reliance on a limited number of suppliers for certain components used to manufacture our products;

• Our suppliers’ ability to improve the functionality and performance of materials and key components for our products;

• Our ability to timely deliver high quality server and storage solutions;

• Increased competition and our ability to compete effectively;

• The AI industry has contributed to our success but also presents significant risks and uncertainties, including potential risks from its use by our workforce;

• Our investments in corporate ventures and other investments;

• Our growth into markets outside the United States;

• Our reliance on indirect sales channels;

Legal and Regulatory Risks

• Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving laws and regulations regarding privacy, data protection and other matters.

• Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive.

• If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

• Failure to comply with the U.S.

Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, and applicable trade control laws could subject us to penalties and other adverse consequences.

• Any failure to protect our intellectual property could impair our brand and our competitiveness.

• Resolution of claims that we have violated or may violate the intellectual property rights of others could require us to indemnify others or pay significant royalties to third parties.

• Provisions of our governance documents and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management.

• Lawsuits and other legal proceedings, disputes, claims, and government inquiries and investigations;

• Compliance with laws, rules, regulations, as well as political and other actions related to export control to which our business is subject;

• Compliance with laws and regulations regarding privacy, data protection and other matters;

• Our ability to protect our intellectual property;

• Compliance with environmental, health and safety laws, U.S.

Foreign Corrupt Practices Act, other applicable anti-corruption and anti-bribery laws, outbound investment regulations, and other government regulation or laws related to our business;

• Anti-takeover provisions in our charter and bylaws;

Financial Risks

• Our R&D expenditures, as a percentage of our net sales, are considerably higher than many of our competitors.

• Our future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws.

• Backlog does not provide a substantial portion of our net sales in any quarter.

Risks Related to Owning our Common Stock

• The trading price of our common stock is likely to be volatile.

• Future sales of shares by existing stockholders, including any shares that have vested or may in the future vest under the 2021 CEO Performance Award, could cause our stock price to decline.

• Our indebtedness, liabilities, and contractual obligations;

• Our ability to raise the funds necessary to repurchase the convertible notes for cash following a fundamental change (including the delisting of our common stock), to repay the outstanding principal and accrued interest upon an event of default, or to pay any cash amounts due upon conversion;

• Provisions in the indentures governing our convertible notes making it harder for a third-party to acquire us;

• Risks associated with the capped call transactions;

• Potential dilution caused by conversion of our convertible notes;

• Our R&D expenditures, which are considerably higher than many of our competitors;

• Change in our future effective income tax rates;

• Our backlog amount;

Risks Related to Owning our Stock

• Volatility of the trading price of our common stock;

• A decline in our stock price caused by future sales by existing stockholders;

• The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters;

• We do not expect to pay any cash dividends for the foreseeable future.

• No expectation in paying dividends in the foreseeable future;

General Risks

• Our products may not be viewed as supporting climate change mitigation in the IT sector;

• Our business and operations may be impacted by natural disaster events, including those brought on by climate change.

• The use of AI by our workforce may present risks to our business.

• Expectations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.

• Enactment of or changes to government regulation or laws related to our business.

Risks Related to our Delinquent SEC Reporting Obligations

We face risks related to previously being delinquent in our SEC reporting obligations.

Due to the circumstances discussed in the Explanatory Note in this Annual Report, our recent SEC filings, including this Annual Report, our Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2024 and December 31, 2024 (the “Delinquent Reports”) were delinquent.

On December 6, 2024, Nasdaq granted us an exception to Nasdaq’s Listing Rule 5250(c)(1), allowing us to file all the Delinquent Reports by February 25, 2025.

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While we filed all of the Delinquent Reports on or before February 25, 2025, 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 may fail to remediate material weaknesses in our internal control over financial reporting and other material weaknesses may be identified in the future, which could adversely affect the accuracy and timing of our financial reporting;

• Failure to timely file our SEC reports and make our current financial information available has placed downward pressure on our stock price, which has adversely affected, and may continue adversely affect, hiring and employee retention;

• Litigation and claims as well as regulatory examinations, investigations, proceedings and orders arising out of our failure to file SEC reports on a timely basis, including the reasons and causes for such failure to file, will continue to divert management attention and resources from the operation of our business;

• We may not be able to recapture lost business or business opportunities due to ongoing reputational harm;

• Negative reports or actions on our commercial credit ratings would increase our costs of, or reduce our access to, future commercial credit arrangements and limit our ability to refinance existing indebtedness.

The outcome of litigation and other legal proceedings, disputes, claims, as well as regulatory examinations, investigations, proceedings and orders arising out of the circumstances discussed in the Explanatory Note in this Annual Report, and any orders, actions or rulings not in our favor could have a material adverse effect on our business, results of operations and financial condition.

Our company and certain of our current and former executive officers and directors are defendants in certain legal proceedings and putative class actions.

Please see Part I, Item 3, “Legal Proceedings.” These proceedings have resulted in significant expenses and the diversion of management attention from our business.

In addition, the circumstances which gave rise to the circumstances discussed in the Explanatory Note in this Annual Report continue to create the risk of additional litigation and claims by investors and examinations, investigations, proceedings and orders by regulatory authorities.

These include a broad range of potential actions that may be taken against us by the SEC or other regulatory agencies, including a cease-and-desist order and/or the assessment of possible civil monetary penalties.

Any such further actions could be expensive and damaging to our business, the results of operations, and financial condition.

We have incurred and expect to continue to incur significant expenses related to the circumstances discussed in the Explanatory Note in this Annual Report, 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 the Explanatory Note in this Annual Report, the management review process and other efforts to regain timely compliance with the filing of our future SEC periodic and other reports.

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, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented or replaced.

Specifically, in connection with the circumstances discussed in the Explanatory Note in this Annual Report, audit and compliance efforts and related litigation and other proceedings, claims, governmental inquiries or investigation, and other demands, we have incurred professional fees totaling $18.6 million through January 31, 2025.

The expenses we are incurring in this regard, as well as the substantial time devoted by our management, could have a material adverse effect on our business, results of operations, and financial condition.

The circumstances discussed in the Explanatory Note in this Annual Report have diverted, and continue to divert, management and other human resources from the operation of our business.

The Board of Directors, members of management, and our accounting, legal, administrative and other staff have spent significant time on the circumstances discussed in the Explanatory Note in this Annual Report and will continue to spend significant time on related matters.

These resources have been, and will likely continue to be, diverted from the strategic and day-to-day management of our business and may have an adverse effect on our ability to accomplish our strategic objectives.

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Additionally, due to the delay in filing the Annual Report as discussed in the Explanatory Note, our registration statements on Form S-8 were ineffective until the Annual Report was filed with the SEC.

This hindered the Company’s ability to grant certain stock-based compensation under its existing compensation programs.

The delay also prevented the Company from holding its annual meeting of stockholders, which would have allowed an increase in the number of common stock shares available for grant under its amended and restated 2020 Equity and Incentive Compensation Plan.

The inability to issue sufficient stock-based compensation could negatively impact our ability to attract and retain talent, potentially affecting our business growth, results of operations, and financial conditions.

Our failure to file SEC reports timely has affected, and could continue to adversely affect our access to outside financing.

As a result of the circumstances discussed in the Explanatory Note in this Annual Report, we chose to terminate our obligations under certain loan agreements early.

The failure to timely file our Delinquent Reports also has resulted in an obligation to pay additional interest and special interest under the terms of the indenture governing our 0.00% Convertible Senior Notes due 2029 (the “2029 Convertible Notes”) (the “2029 Convertible Notes Indenture”), which was subsequently amended on February 20, 2025 to, among others, provide for the 2029 Convertible Notes to bear interest from February 20, 2025 at an annual rate of 3.50%.

Please see Note 16, “Subsequent Events” in the Notes to the Consolidated Financial Statements in this Annual Report for information regarding the amendment of the terms of the 2029 Convertible Notes.

While we have filed all the Delinquent Reports within the extension period granted by Nasdaq, if any of our SEC periodic or other reports becomes delinquent in the future, any sources of financing that may be available to us could also be at higher costs and require us to satisfy more restrictive covenants, which could limit or restrict our operations, cash flows and earnings.

We cannot ensure that additional financing will be available to us or be sufficient or available on satisfactory terms.

In addition, unless we have filed all required reports with the SEC, we will be precluded from registering our securities with the SEC for offer and sale, and the failure to timely file our SEC reports will limit our ability to use “short-form” Form S-3 registration statements for registering our securities for sale with the SEC until we again meet the timely filing requirements of Form S-3.

If we are unable to access outside financing in a timely manner, or we are not able to obtain additional financing on terms favorable to us, our business, results of operations, and financial condition could be adversely affected.

Matters relating to or arising from the circumstances discussed in the Explanatory Note 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 been and could continue to be the subject of negative publicity focused on the matters underlying the circumstances discussed in the Explanatory Note in 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.

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.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report on the effectiveness of our internal control over financial reporting in our annual reports, and annually our independent auditors must attest to and report on the effectiveness of our internal control over financial reporting.

It is necessary for us to maintain effective internal control over financial reporting to prevent fraud and errors and to maintain effective disclosure controls and procedures so that we can provide timely and reliable financial and other information.

A failure to maintain adequate internal controls may adversely affect our ability to provide financial statements that accurately reflect our financial condition and report information on a timely basis.

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We have concluded that our internal control over financial reporting was not effective as of June 30, 2024 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, 2024 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.

Moreover, because of the inherent limitations of any control system, material misstatements due to error or fraud may not be prevented or detected on a timely basis, or at all.

If we are unable to provide reliable and timely financial reports in the future or if our financial statements are restated, our business and reputation may be further harmed.

Restated financial statements and failures in internal controls may also cause us to fail to meet reporting obligations, negatively affect investor and customer confidence in our management or result in adverse publicity and concerns from investors and customers, any of which could have a negative effect on the price of our common stock, subject us to further regulatory investigations, potential penalties or stockholder litigation, and have a material adverse impact on our business and financial condition.

Operational and Execution Risks

Adverse economic conditions may harm our business.

Our business depends on the overall demand for accelerated compute platforms.

Global financial developments and downturns seemingly unrelated to us or our industry may 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 further deteriorate, including as a result of the downturn in the global economy, the Russia-Ukraine conflict and related sanctions and trade restrictions, the effects of the COVID-19 pandemic 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, continued 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.

Inflation in the U.S.

has recently increased at a rate not seen in several decades, which 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.

Inflation may continue to increase, both in the U.S.

and globally, which could increase our operating costs and reduce demand for our Total IT Solutions.

The Federal Reserve has significantly raised, and may again raise, interest rates in response to concerns over inflation risk, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, reduce technology expenditures and demand for our Total IT Solutions.

Recent events in eastern Europe and the Taiwan strait present challenges and risks to us, and no assurances can be given that current or future developments will not have a material adverse effect on our business, results of operations and financial condition.

The crisis in eastern Europe continues to pose challenges to global companies, including us, which have customers in the impacted regions.

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 expense.

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 quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price.

1 unchanged sentence

Factors that may affect quarterly operating results include:

• Fluctuations in demand for our products, in part due to changes in the global economic environment;

• The circumstances discussed in the Explanatory Note in this Annual Report;

• Fluctuations in demand for our products, in part due to factors such as changes in emergent and rapidly evolving markets (such as AI) and changes in the global economic environment;

• Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements;

• The timing of the introduction of new products by leading microprocessor vendors and other suppliers;

• Fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker;

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• Continuing lingering effects from the COVID-19 pandemic, the occurrence of other global pandemics, and other events that impact the global economy or one or more sectors thereof, such as the global economic downturn and recent events in eastern Europe;

• The ability of our customers and suppliers to obtain financing or fund capital expenditures;

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• Variability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions;

• Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements;

• The timing of the introduction of new products by leading microprocessor vendors and other suppliers;

• The introduction and market acceptance of new technologies and products, and our success in emergent and rapidly evolving markets (such as AI), and incorporating emerging technologies in our products, as well as the adoption of new standards;

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• General economic conditions in our geographic markets;

• Geopolitical tensions, including trade wars, tariffs and/or sanctions in our geographic markets;

• Impact of regulatory changes on our cost of doing business.

In addition, customers may hesitate to purchase, or not continue to purchase, our products based upon past unwarranted reports about security risks associated with the use of our products.

Accordingly, our growth and results of operations may fluctuate on a quarterly basis.

• Geopolitical tensions, including regional conflicts, trade wars, tariffs and/or sanctions in our geographic markets;

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• Impact of regulatory changes (including export control) on our cost of doing business.

Customers may hesitate to purchase, or not continue to purchase, our products based upon the circumstances discussed in the Explanatory Note in this Annual Report.

If we fail to meet expectations of investors or analysts, our stock price may fall rapidly and without notice.

Furthermore, the fluctuation of quarterly operating results may render less meaningful period-to-period comparisons of our operating results, and you should not rely upon them as an indication of future performance.

If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value.

We generally provide forward-looking financial guidance when we announce our financial results for the prior quarter.

No assurances can be given that we will continue to provide forward-looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance.

If issued, we undertake no obligation to update any forward-looking guidance at any time.

In the past, our financial results have failed from time to time to meet the guidance we provided.

There are a number of reasons why we have at times failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors.

We depend upon the development of new products and enhancements to our existing products, and if we fail to predict or respond to emerging technological trends and our customers’ changing needs, our operating results and market share may suffer.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, new product introductions, and evolving methods of operations.

While our revenues increased in fiscal year 2024, our operating results depend on our ability to develop and introduce new products into existing and emerging markets (such as AI) and to reduce the production costs of existing products.

If our customers do not purchase our products, our business will be harmed.

The process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed.

We must commit significant resources, including the investments we have been making in our strategic priorities to developing new products before knowing whether our investments will result in products and services the market will accept and investments to purchase inventory of key components for which there have been periods of supply constraint.

If the industry does not evolve as we believe it will, or if our strategy for addressing this evolution is not successful, many of our strategic initiatives and investments may be of no or limited value.

Suppliers of our key components may introduce new technologies that are critical to the functionality of our products more quickly than anticipated, which may render components we have on hand obsolete, saddling us with excess inventory which we may not be able to utilize in our products or sell at prices we had anticipated.

Conversely, suppliers of our key components may also introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers.

Similarly, our business could be harmed if we fail to develop, or fail to develop in a timely fashion, offerings to address other transitions, or if the offerings addressing these other transitions that ultimately succeed are based on technology, or an approach to technology, different from ours.

In addition, our business could be adversely affected in the periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.

Furthermore, we may not execute successfully on our vision or strategy because of challenges with regards to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.

This could result in competitors, some of which may also be our suppliers, providing those solutions before we do and loss of market share, revenue, and earnings.

The success of new products depends on several factors, including proper new product and service definition, component costs, timely completion and introduction of these products, differentiation of new products from those of our competitors, market acceptance of these products, and providing appropriate support of these products.

There can be no assurance that we will successfully identify new product opportunities, develop and bring new products to market in a timely manner, or achieve market acceptance of our products or that products and technologies developed by others will not render our products or technologies obsolete or noncompetitive.

The products and technologies in our other product categories and key priority and growth areas may not prove to have the market success we anticipate, and we may not successfully identify and invest in other emerging or new products.

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We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.

To offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory.

If we fail to maintain sufficient inventory, we may not be able to meet demand for our products on a timely basis, and our sales may suffer.

If we overestimate customer demand for our products for whatever reason (including technology changing more rapidly than we anticipate), we could experience excess inventory of our products and be unable to sell those products at a reasonable price, or at all.

As a result, we may need to record higher inventory reserves.

In addition, from time to time we assume greater inventory risk in connection with the purchase or manufacture of more specialized components in connection with higher volume sales opportunities.

In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as periods of supply constraint of key components and those related to lingering effects of the COVID-19 pandemic.

Specifically, we sought to actively manage our supply chain for potential risks of shortage by building inventories of critical components required for our motherboards and other system printed circuit boards, as well as add to our inventories of key components such as GPUs, CPUs, memory, and solid state drives ("SSDs") so that customer orders can be fulfilled as rapidly as possible after they are received.

We may continue to take similar actions in the future based upon our assessment of uncertainties and risks.

Nevertheless, no assurances can be given that any such efforts will be successful to manage inventory, and we could be exposed to risks of insufficient, excess, or obsolete inventory.

We have from time-to-time experienced inventory write downs associated with higher volume sales that were not completed as anticipated.

We expect that we will experience such write downs from time-to-time in the future related to existing and future commitments, and potentially related to any proactive purchase of certain critical materials and components as part of our planning for uncertainties and risks.

Excess or obsolete inventory levels for these or other reasons could result in unexpected expenses or increases in our reserves against potential future charges which would adversely affect our business, results of operations and financial condition.

Our revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results.

As a result of a variety of factors discussed in this Annual Report, our revenue and margins for a particular quarter are difficult to predict, especially in light of a challenging and inconsistent global macroeconomic environment, lingering impacts of the COVID-19 pandemic, the global economic downturn, recent events in eastern Europe, volatility in emergent and rapidly evolving markets (such as AI), steps we are taking in response thereto, increased competition, the effects of the ongoing trade disputes between the United States and China and related market uncertainty.

Our revenue and margins for a particular quarter are difficult to predict, especially in light of the potential volatility in emergent and rapidly evolving markets (such as AI), increased competition, challenging and inconsistent global macroeconomic environment, and steps we are taking in response to each of the foregoing.

Our revenue may grow at a slower rate than in past periods or decline.

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The timing of such orders is difficult to predict, and the timing of revenue recognition from such orders may affect period to period changes in revenue.

When we issue credit in connection with large orders, in the event customers to do not pay or make timely payment our ability to collect amounts owed to us creates risk.

When we issue credit in connection with large orders, in the event customers do not pay or make timely payment, our ability to collect amounts owed to us creates risk.

We have in the past, and may continue in the future, on a case-by-case basis, take steps to mitigate collection risks, such as seeking third party insurance with respect to credit issued and taking a security interest in goods we have sold to customers pending collection of any credit given.

However, we cannot assure that such measures will be effective to collect on all or part of any such credit issued.

However, we cannot be assured that such measures will be effective to collect on all or part of any such credit issued.

As a result, our operating results could vary materially from quarter to quarter based on the receipt of such orders and their ultimate recognition as revenue.

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SMCI | 2024 Form 10-K | 17

As we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable.

In some instances, we take security interests in the products sold.

The exercise of such security interests, and the resale of our products, could negatively affect the results of operations and operating cash flows.

To mitigate the collection risks associated with larger sales, we have, in some instances, taken security interests in our products sold pending the collection of outstanding accounts receivable.

These security interests grant us priority as a secured creditor and entitle us to the recapture of the products sold in the event of customer default or bankruptcy.

However, we cannot guarantee that we will be able to successfully recapture our products on exercise of our security interests.

Even if we can recapture our products, we may not be able to successfully re-sell such products at a favorable price.

The occurrence of any of these events could negatively affect the results of operations and operating cash flows.

As we increasingly target larger customers and sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and increased credit risks, and our sales may be less predictable.

We have become increasingly dependent upon larger sales to grow our business.

In particular, in recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs.

While no single customer accounted for 10% or more of net sales in any of fiscal years 2023, 2022 or 2021, we may have customers account for 10% or more of net sales in the future.

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 2024, while we had no single customer account for 10% or more of net sales in fiscal years 2023 or 2022.

We anticipate we may continue to have customers account for 10% or more of net sales in the future, and the 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 the global economic downturn, lingering impacts of the COVID-19 pandemic, or recent events in eastern Europe on their or our businesses, our ability to maintain or grow our net sales will be adversely affected.

Increased sales to larger customers may also cause fluctuations in results of operations.

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 belief by such customers of excessive dependency upon us as a supplier, our ability to maintain or grow our net sales will be adversely affected.

Increased sales to larger customers may also cause fluctuations in the results of operations.

Large orders are generally subject to intense competition and pricing pressure which can have an adverse impact on our margins and results of operations.

Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period of time during which the customer either does not purchase any products or only a small number of our products.

Accordingly, a significant increase in revenue during the period in which we recognize the revenue from a large customer may be followed by a period during which the customer either does not purchase any products or only a small number of our products.

Additionally, as we and our partners focus increasingly on selling to larger customers and attracting larger orders, we expect greater costs of sales.

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SMCI | 2024 Form 10-K | 18

If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value.

We g enerally provide forward looking financial guidance when we announce our financial results for the prior quarter.

No assurances can be given that we will continue to provide forward looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance.

If issued, we undertake no obligation to update any forward-looking guidance at any time.

In the past, our financial results have failed to meet the guidance we provided.

There are a number of reasons why we have at times failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors.

We may be unable to secure additional financing on favorable terms, or at all, which in turn could impair the rate of our growth.

We had net income of $640.0 million, $285.2 million and $111.9 million in fiscal years 2023, 2022 and 2021, respectively.

We had net income of $1.15 billion, $640.0 million and $285.2 million in fiscal years 2024, 2023 and 2022, respectively.

During fiscal year 2024 we raised approximately $2.31 billion, after deducting underwriting discounts and commissions and offering expenses payable by us, in two equity offerings of our common stock and $1.55 billion, net of debt issuance costs and capped call transactions costs in an offering of convertible debt securities.

In addition, we borrowed $500.0 million under our term loan facility in July 2024.

Our Taiwan subsidiary, where we maintain significant operations, also increased their lines of credit, or entered into new lines of credit, with various commercial banks in Taiwan.

In addition, on February 20, 2025, we issued $700.0 million aggregate principal amount of our 2.25% Convertible Senior Notes due 2028 (the “2028 Convertible Notes”) in a private placement.

We believe that our current cash, cash equivalents, borrowing capacity available from our credit facilities and internally generated cash flows 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.

Since our initial public offering, we have funded our growth primarily through the cash raised from our operations and credit facilities with banking institutions.

We may need to expand our existing credit facilities, enter into new credit facilities or engage in 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 future issuances of equity or convertible debt 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.

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.

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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.

Increases in average selling prices for our solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.

Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

The market for key components became, and continues to be, more volatile during the global economic downturn, the COVID-19 pandemic and lingering effects thereof, and recent events in eastern Europe.

As with most electronics-based products, average selling prices of server and storage products are typically highest at the time of introduction of new products, which utilize the latest technology, and tend to decrease over time as such products become commoditized and are ultimately replaced by even newer generation products.

We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future, which may be exacerbated by the global economic downturn, lingering effects from the COVID-19 pandemic, and recent events in eastern Europe.

In some instances, our agreements with our indirect sales channel partners limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory.

If we are unable to either (i) decrease the average per unit manufacturing costs faster than the rate at which average selling prices decline or (ii) increase the average selling prices at the same pace at which average per unit manufacturing costs increase, our business, financial condition and results of operations will be harmed.

SMCI | 2023 Form 10-K | 14

Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.

Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, serverboards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales.

Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.

Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as GPUs, server boards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales.

GPUs have represented an increasing portion of our cost of sales.

While we have increased our purchases of certain critical materials and core components in response to the supply and demand uncertainties, we do not have long-term supply contracts for all critical materials and core components, but instead often purchase these materials and components on a purchase order basis.

Prices and availability of these core components and materials are volatile, and, as a result, it is difficult to predict expense levels and operating results.

In addition, if our business growth renders it necessary or appropriate to transition to longer term contracts with materials and core component suppliers, our costs may increase, and our gross margins could correspondingly decrease.

Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI).

Our industry has experienced materials shortages and delivery delays in the past, including as a result of increased demand during periods of growth of new emerging markets (such as for AI), the negative impact of COVID-19, the global economic downturn and recent events in eastern Europe on global supply chains, and we may experience shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner in the future.

The COVID-19 pandemic, other macroeconomic factors exacerbated by the COVID-19 pandemic, lingering effects from the COVID-19 pandemic, and other factors, have in the past resulted in, and may in future result in additional shortages of key semiconductors.

For a variety of reasons, including supply constraints of some key components and forecasts for the demand for our products, the purchase orders we place for such components and materials have resulted in a growth of inventory.

No assurances can be given that we will be able to enter into necessary long-term supply contracts for critical materials and core components, or, even if we are able to enter into such supply contracts, that they would be appropriate, or our costs, gross margins or inventory would improve.

Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders and warranty claims, which in some cases require the provision of replacement solutions, because of the then-current availability or the terms and pricing of these materials and key components, particularly for GPUs during periods of growth of new emerging markets (such as for AI).

While we have experienced an increase in demand for certain of our products in the recent past, our industry has experienced materials shortages and delivery delays in the past, including as a result of increased demand during periods of growth of new emerging markets (such as for AI), challenges in the global supply chain as a result of conflict and pandemic, and global economic downturn.

We may have experienced, or continue to experience, shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner to meet the needs of our increasing demand.

From time to time, we have been forced to delay the introduction of certain of our products or the fulfillment of customer orders as a result of shortages of materials and key components, which can adversely impact our revenue.

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In the event of shortages, some of our larger competitors may have greater abilities to obtain materials and key components due to their larger purchasing power.

We may not be able to secure enough key components or materials at reasonable prices or of acceptable quality to build new products to meet customer demand, which could adversely affect our business, results of operations and financial condition.

We may not be able to secure enough key components or materials at reasonable prices or of acceptable quality to build new products to meet customer demand or timely resolve warranty claims, which could adversely affect our business, results of operations and financial condition.

In addition, from time to time, we have accepted customer orders with various types of component pricing protection.

Such arrangements have increased our exposure to component pricing fluctuations and have adversely affected our financial results in certain quarters.

If we were to lose any of our current supply or contract manufacturing relationships, the process of identifying and qualifying a new supplier or contract manufacturer who meets our quality and delivery requirements, and who will appropriately safeguard our intellectual property, may require a significant investment of time and resources, adversely affecting our ability to satisfy customer purchase orders and delaying our ability to rapidly introduce new products to market.

Similarly, if any of our suppliers were to cancel, materially change contracts or commitments to us or fail to meet the quality or delivery requirements needed to satisfy customer demand for our products, whether due to shortages or other reasons, our reputation and relationships with customers could be damaged.

We could lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.

SMCI | 2024 Form 10-K | 19

We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.

To offer greater choices and optimization of our products to benefit our customers, we maintain a high level of inventory.

If we fail to maintain sufficient inventory, we may not be able to meet demand for our products on a timely basis, and our sales may suffer.

If we overestimate customer demand for our products, we could experience excess inventory of our products and be unable to sell those products at a reasonable price, or at all.

As a result, we may need to record higher inventory reserves.

In addition, from time to time we assume greater inventory risk in connection with the purchase or manufacture of more specialized components in connection with higher volume sales opportunities.

In the past, we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning for various uncertainties and risks, such as those related to the COVID-19 pandemic and lingering effects therefrom.

Specifically, we sought to actively manage our supply chain for potential risks of shortage by first building inventories of critical components required for our motherboards and other system printed circuit boards and continued to add to our inventories of key components such as CPUs, memory, SSDs and to a lesser extent GPUs such that customer orders can be fulfilled as they are received.

We may continue to take similar actions in the future based upon our assessment of uncertainties and risks.

Nevertheless, no assurances can be given that any such efforts will be successful to manage inventory, and we could be exposed to risks of insufficient, excess, or obsolete inventory.

We have from time to time experienced inventory write downs associated with higher volume sales that were not completed as anticipated.

Difficulties we encounter relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely impact our controls environment.

If we were to lose any of our current supply or contract manufacturing relationships, the process of identifying and qualifying a new supplier or contract manufacturer who meets our quality and delivery requirements, and who will appropriately safeguard our intellectual property, may require a significant investment of time and resources (if an alternative supplier is available at all), adversely affecting our ability to satisfy customer purchase orders and warranty claims and delaying our ability to rapidly introduce new products to market.

In addition, changes in supplier credit terms may have impacts on our ability to acquire materials and key components needed to meet customer demand or required for growth.

An inability to meet such customer demand may have adverse impacts on our growth or our ability to maintain or grow market share.

We could also lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.

Challenges we encounter in enhancing and updating ERP systems and other IP applications, including automating internal controls through our ERP systems and maintaining internal controls over processes in other IT applications, could adversely impact our controls environment.

Many companies have experienced challenges with their ERP systems that have had a negative effect on their business.

We have incurred and expect to continue to incur additional expenses related to our ERP systems, particularly as we continue to further enhance and develop them including by automating certain internal controls.

Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems or integrating processes that occur in other IT applications could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment.

We have incurred and expect to continue to incur additional expenses related to our ERP systems, particularly as we continue to further enhance and develop them, including by automating certain internal controls and updating systems which are approaching the end of their service life or may no longer be supported.

Any future disruptions, delays or deficiencies relating to automating internal controls utilizing our ERP systems, integrating processes that occur in other IT applications, or updating systems could adversely affect our ability to file reports with the SEC in a timely manner, deliver accurate financial statements and otherwise impact our controls environment.

Any of these consequences could have an adverse effect on our business, results of operations and financial condition.

System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could disrupt our internal operations or compromise the security of our products, and any such disruption could reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.

Malicious computer programmers and hackers may be able to penetrate our network and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns.

Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products.

While there have been unauthorized intrusions into our network in the past, none of these intrusions, individually or in the aggregate, had a material adverse effect on our business, operations, or products.

We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cyber-security matters.

Despite these efforts, we may experience future intrusions, which could adversely affect our business, operations, or products.

In addition, our hardware and software or third-party components and software that we utilize in our products may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation or security of the products.

The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.

Any claim that our products or systems are subject to a cyber-security risk, whether valid or not, could damage our reputation and adversely impact our revenues and results of operations.

Increases in average selling prices for our solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, or key components become more widely available and commoditized, which could harm the results of operations.

Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

The market for key components became, and continues to be, volatile.

We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future, which may be exacerbated by factors such as global economic conditions, regional conflicts, and rapid developments in trade restrictions.

In some instances, our agreements with our indirect sales channel partners limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory.

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.

Additionally, President Trump has indicated that his administration would potentially impose greater restrictions on trade with China through significant increases in tariffs on goods imported into the U.S., which could increase tensions and create greater uncertainty in our business dealings.

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 | 2024 Form 10-K | 20

Global events may present challenges and risks to us.

For example, the crises in eastern Europe and the Middle East continues to pose challenges to global companies, including us, which have customers in the impacted regions.

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.

however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions.

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 seemingly unrelated to us or our industry may 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, 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.

While recently moderating, inflation in the U.S.

had increased at 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 had significantly raised, and may again raise, interest rates, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, 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.

SMCI | 2024 Form 10-K | 21

System security violations, data protection breaches, cyber-attacks and other related cyber-security issues could materially disrupt our internal operations or compromise the security of our products, and any such disruption could materially reduce our expected revenues, increase our expenses, damage our reputation and adversely affect our stock price.

Malicious computer programmers, malicious insiders, criminals, hackers and sophisticated organizations (including nation states) may be able to penetrate our network and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns that could have a material adverse effect on our business, operations, or products.

Such computer programmers, hackers, and organizations also may be able to develop and deploy ransomware, network intrusions, exploitation of zero-day vulnerabilities, distributed denial of service, man-in-the-middle, phishing, vishing, domain name system spoofing, password spraying, viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products that could likewise have a material adverse effect on our business.

There have been increases in the frequency and sophistication of such attacks, and we expect that these activities will continue.

We may also face cybersecurity threats due to error or intentional misconduct by employees, contractors or other third-party service providers.

Certain aspects of effective cybersecurity are dependent upon our employees, contractors and/or other third-party service providers safeguarding our sensitive information and adhering to our security policies and access control mechanisms.

While we employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, regular annual training of employees with respect to cybersecurity, and testing employee competence with anti-phishing policies followed up by additional remedial training as needed, these measures may fail to prevent or detect significant attacks on our systems.

Additionally, the costs associated with cybersecurity tools and infrastructure and fierce competition for scarce cybersecurity and IT talent have at times limited, and may in the future limit, our ability to efficiently identify, eliminate, or remediate cyber or other security vulnerabilities or problems or enact changes to minimize the attack surface of our network.

We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cybersecurity matters.

Despite these efforts, we may experience future intrusions, which could materially and adversely affect our business, operations, or products.

The costs to us to eliminate or mitigate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant and, if our efforts to address these problems are not successful, could result in material interruptions, delays, cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions.

Any claim that our products or systems are subject to cybersecurity risk, whether valid or not, could damage our reputation and materially and adversely impact our revenues and results of operations.

We manage and store various proprietary information and sensitive or confidential data relating to our business as well as information from our suppliers and customers.

Breaches of our or any of our third party suppliers’ security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise harm our business.

To the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be adversely affected.

Breaches of our or any of our third party suppliers’ security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us or our customers or suppliers, including the potential loss or disclosure of such information or data as a result of fraud, trickery or other forms of deception, could expose us or our customers or suppliers to a material risk of loss or misuse of this information, result in litigation and potential material liability for us, materially damage our brand and reputation or otherwise materially harm our business.

To the extent we experience cyber-security incidents in the future, our relationships with our customers and suppliers may be materially impacted, our brand and reputation may be materially harmed and we could incur substantial costs in responding to and remediating the incidents and in resolving any investigations or disputes that may arise with respect to them, any of which would cause our business, operations, or products to be materially and adversely affected.

In addition, the cost and operational consequences of implementing and adding further data protection measures could be significant.

SMCI | 2024 Form 10-K | 22

Any failure to adequately expand or retain our sales force will impede our growth.

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New hires require significant training and may take six months or longer before they reach full productivity.

Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision.

If we are unable to hire, develop and retain sufficient numbers of productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer.

Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire enough qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision.

If we are unable to hire, develop and retain enough productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer.

Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect our operations.

We use Ablecom, a related party, for contract design and manufacturing coordination support and warehousing, and Compuware, also a related party and an affiliate of Ablecom, for distribution, contract manufacturing and warehousing.

We work with Ablecom to optimize modular designs for our chassis and certain of other components.

We work with Ablecom to optimize modular designs for our chassis and certain other components.

We outsource to Compuware a portion of our design activities and a significant part of our manufacturing of subassemblies, particularly power supplies.

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Ablecom and Compuware are both privately held Taiwan-based companies.

In addition, we have entered into a distribution agreement with Compuware, under which we have appointed Compuware as a nonexclusive distributor of our products in Taiwan, China and Australia.

In addition, we have appointed Compuware as a nonexclusive authorized distributor of our products in Taiwan, China and Australia.

Each of Ablecom and Compuware are also developing campuses in close proximity to the campus we are developing in Malaysia to expand our manufacturing.

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Charles Liang and his spouse, Sara Liu, our Co-Founder, Senior Vice President and Director, jointly owned approximately 10.5% of Ablecom’s capital stock, while Mr.

Steve Liang and other family members owned approximately 28.8% of Ablecom’s outstanding common stock as of June 30, 2023.

Steve Liang and his family members owned approximately 35.0% of Ablecom’s outstanding common stock as of June 30, 2024.

Bill Liang, a brother of both Charles Liang and Steve Liang, is a member of the Board of Directors of Ablecom as well.

In addition, a sibling of Yih-Shyan (Wally) Liaw, who is our Senior Vice President, Business Development and a director on our Board, owns approximately 11.7% of Ablecom’s capital stock and 8.7% of Compuware’s capital stock.

In October 2018, our Chief Executive Officer, Charles Liang, personally borrowed approximately $12.9 million from Chien-Tsun Chang, the spouse of Steve Liang.

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As of June 30, 2024, the amount due on the unsecured loan (including principal and accrued interest) was approximately $16.4 million.

SMCI | 2023 Form 10-K | 17

Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board of Directors and a holder of a significant equity interest in Compuware.

Bill Liang is also the Chief Executive Officer of Compuware, Chairman of Compuware’s Board of Directors and a holder of equity interest in Compuware.

Steve Liang is also a member of Compuware’s Board of Directors and is an equity holder of Compuware.

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If our business dealings with Ablecom or Compuware are not as favorable to us as arms-length transactions, our results of operations may be harmed.

SMCI | 2024 Form 10-K | 23

If Ablecom or Compuware are acquired or sold, new ownership could reassess the business and strategy of Ablecom or Compuware, and as a result, our supply chain could be disrupted or the terms and conditions of our agreements with Ablecom or Compuware may change.

As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and results of operations.

As a result, our operations could be negatively impacted or costs could increase, either of which could adversely affect our margins and the results of operations.

Our reliance on Ablecom could be subject to risks associated with our reliance on a limited source of contract manufacturing services and inventory warehousing.

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If any of these things should occur, our net sales, margins and earnings could significantly decrease, which would have a material adverse effect on our business, results of operations and financial condition.

SMCI | 2023 Form 10-K | 18

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 our company or our products, even if inaccurate or untrue, could adversely affect our reputation and the confidence in our products, which could harm our business and operating results.

For example, in October 2018, a news article was published alleging that malicious hardware chips were implanted on our motherboards during the manufacturing process at the facilities of a contract manufacturer in China.

We undertook a thorough investigation of this claim with the assistance of a leading, independent third-party investigations firm wherein we tested a representative sample of our motherboards, including the specific type of motherboard depicted in the news article and motherboards purchased by companies referenced in the article, as well as more recently manufactured motherboards.

After completing these examinations as well as a range of functional tests, the investigations firm reported that it had found no evidence of malicious hardware on our motherboards.

In addition, neither the publisher of the news article nor any of our customers have ever provided a single example of any such altered motherboard.

However, despite repeated denials of any tampering by our customers and us, and the announcement of the results of this independent investigation, the publication of this false allegation in 2018 had a substantial negative impact on the trading price of our common stock and our reputation.

The October 2018 news article, the follow up news article published in January 2021, and any similar future article making similar false allegations, may continue to have a negative impact in the future.

Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, 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 our company with these partners.

If we lose Charles Liang, our President, Chief Executive Officer and Chairman, or any other key employee or are unable to attract additional key employees, we may not be able to implement our business strategy in a timely manner.

Our future success depends in large part upon the continued service of our current executive management team and other key employees.

In particular, Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction.

Charles Liang, our President, Chief Executive Officer and Chairman of the Board, is critical to the overall management of our company as well as to our strategic direction.

Liang co-founded our company and has been our Chief Executive Officer since our inception.

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Additionally, we are particularly dependent on the continued service of our existing research and development personnel because of the complexity of our products and technologies.

Our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without notice, without penalty.

While the vesting of certain long-term performance-based option awards granted to Mr.

Liang are tied to Mr.

Liang remaining as our CEO (or such other position as the Board may agree), our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without notice, without penalty.

The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business.

SMCI | 2024 Form 10-K | 24

Our direct sales efforts may create confusion for our end customers and harm our relationships in our indirect sales channel and with our OEMs.

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Our failure to implement an effective direct sales strategy that maintains and expands our relationships in our indirect sales channel and with our OEMs could lead to a decline in sales, harm relationships and adversely affect our business, results of operations and financial condition.

SMCI | 2023 Form 10-K | 19

Negative publicity about our company 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.

However, despite these statements related to the allegations in the Report, and the announcement of the results of Special Committee investigation, the publication of the Report and the circumstances discussed in the Explanatory Note in this Annual Report contributed to a substantial negative impact on the trading price of our common stock and our reputation, and may continue to have a negative impact in the future.

If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.

To execute our growth plan, we must attract additional highly qualified personnel, including additional engineers and executive staff.

To execute our growth plan, we must attract additional highly qualified personnel, including a Chief Financial Officer, a Chief Compliance Officer, a General Counsel and additional in-house attorneys, additional engineers and executive staff.

Competition for qualified personnel is intense, especially in Silicon Valley, where we are headquartered.

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Strategic and Industry Risks

We must work closely with our suppliers to make timely new product introductions.

We rely on our close working relationships with our suppliers, including Intel, AMD and NVIDIA, to anticipate and deliver new products on a timely basis when new generation materials and key components are made available.

If we are not able to maintain our relationships with our suppliers or continue to leverage their research and development capabilities to develop new technologies desired by our customers, our ability to quickly offer advanced technology and product innovations to our customers would be impaired.

We have no long-term agreements that obligate our suppliers to continue to work with us or to supply us with products.

SMCI | 2024 Form 10-K | 25

If we do not successfully manage the expansion of our international manufacturing capacity and business operations, our business could be harmed.

Since inception, we have conducted a majority of our manufacturing operations in San Jose, California.

We continue to increase our manufacturing capacity in Taiwan and in the Netherlands and have sought to accelerate manufacturing in Taiwan in order to better diversify our geographical manufacturing concentration.

Since inception, we have conducted the majority of our manufacturing operations in San Jose, California.

We continue to increase our manufacturing capacity in Taiwan and in the Netherlands and have sought to accelerate manufacturing in Taiwan to better diversify our geographical manufacturing concentration.

In order to continue to successfully increase our operations in Taiwan, we must efficiently manage our Taiwan operations from our headquarters in San Jose, California and continue to develop a strong local management team.

We are also pursuing an expansion of our manufacturing operations into Malaysia.

During the second quarter of fiscal year 2023, we entered into a letter of understanding to acquire land in Malaysia.

A definitive agreement to acquire such land, subject to various conditions, was subsequently executed in January 2023.

We are obtaining early access to such land prior to acquisition, and we anticipate significant capital expenditures will be required for such initiative.

To the extent we are unable to recoup expenditures made during our period of early access to such land and we are subsequently unable to complete the acquisition of the land, we could be materially and adversely affected.

Furthermore, if we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations.

If we are unable to successfully ramp up our international manufacturing capacity in Taiwan, the Netherlands, Malaysia, or any other jurisdictions we pursue, including the associated construction, increased logistics and warehousing, we may incur unanticipated costs, difficulties in making timely delivery of products or suffer other business disruptions which could adversely impact our results of operations.

We may not be able to successfully manage our business for growth and expansion.

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There are also no assurances that investments we make to pursue new business markets and opportunities (such as ecommerce in B2B and B2C markets and data center offerings) will be successful or profitable, given the investment costs necessary to pursue these markets and opportunities, which includes investments in technology, people, time, and other overhead costs.

As our business continues to grows, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to.

As our business continues to grow, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, expand the number and scope of our relationships with suppliers, distributors and end customers, and (for new business markets and opportunities we pursue) manage different and increasingly complex regulatory landscapes they are subject to.

If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results.

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If we are not able to predict market trends accurately, we may not benefit from such research and development activities, and our results of operations may suffer.

SMCI | 2023 Form 10-K | 20

Managing our business for long-term growth also requires us to successfully manage our employee headcount.

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If we fail to successfully manage our growth, we will be unable to execute our business plan.

Our growth into markets outside the United States exposes us to risks inherent in international business operations.

We market and sell our systems and subsystems and accessories both inside and outside the United States.

We intend to expand our international sales efforts, especially into Asia, and we are expanding our business operations in Europe and Asia, particularly in Taiwan, Malaysia, the Netherlands and Japan.

In particular, we have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations.

Our international expansion efforts may not be successful.

Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

• Heightened price sensitivity from customers in emerging markets;

• Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets;

• Localization of our systems and components, including translation into foreign languages and the associated expenses;

• Compliance with multiple, conflicting and changing governmental laws and regulations;

• Foreign currency fluctuations and inflation;

• Limited visibility into sales of our products by our channel partners;

• Greater concentration of competitors in some foreign markets than in the United States;

• Laws favoring local competitors;

• Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights;

• Market disruptions created by world events, such as the global economic downturn and recent events in eastern Europe, or by other public health crises in regions outside the United States, such as avian flu, SARS and other diseases;

• Import and export tariffs;

• Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions;

• Changing regional economic and political conditions.

These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, new product introductions, and evolving methods of operations.

While our revenues increased in fiscal year 2023, the global economic downturn may affect customer purchasing trends, and our operating results depend on our ability to develop and introduce new products into existing and emerging markets (such as AI) and to reduce the production costs of existing products.

If our customers do not purchase our products, our business will be harmed.

SMCI | 2024 Form 10-K | 26

Also, suppliers of our key components may introduce new technologies that are critical to the functionality of our products at a slower rate than their competition, which could adversely impact our ability to timely develop and provide competitive offerings to our customers.

In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.

Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.

This could result in competitors, some of which may also be our suppliers, providing those solutions before we do and loss of market share, revenue, and earnings.

We rely on a limited number of suppliers for certain components used to manufacture our products.

Certain components used in the manufacture of our products are available from a limited number of suppliers.

Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the prior COVID-19 pandemic, prior global economic downturns, and emergence of regional conflicts) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI).

Similar future events may cause additional interruptions in the global supply chain.

Two of our suppliers accounted for 65.4% and 6.3% of total purchases for fiscal year 2024.

The same two suppliers accounted for 30.7% and 13.5% of total purchases for fiscal year 2023.

The same two suppliers accounted for 11.4% and 18.1% of total purchases for fiscal year 2022.

Ablecom and Compuware, related parties, accounted for 4.3%, 6.6% and 8.3% of our total cost of sales for fiscal year 2024, 2023 and 2022, respectively.

If any of our largest suppliers discontinue their operations, if our relationships with them are adversely impacted, or there are significant adverse changes to the terms upon which we do business, we could experience a material adverse effect on our business, results of operations and financial condition.

See also “— Our cost structure, ability to deliver server solutions to customers, and ability to resolve warranty claims in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.”

Our suppliers’ failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers.

We need our material and key component suppliers, such as Intel, AMD and NVIDIA, to provide us with components that are innovative, reliable and attractive to our customers.

Due to the pace of innovation in our industry, many of our customers may delay or reduce purchase decisions until they believe that they are receiving best of breed products that will not be rendered obsolete by an impending technological development.

Accordingly, demand for new server and storage systems that incorporate new products and features is significantly impacted by our suppliers’ new product introduction schedules and the functionality, performance and reliability of those new products.

If our materials and key component suppliers fail to deliver new and improved materials and components for our products, we may not be able to satisfy customer demand for our products in a timely manner, or at all.

If our suppliers’ components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected.

Our failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.

Our server and storage solutions are critical to our customers’ business operations.

Our customers require our server and storage solutions to perform at a high level, contain valuable features and be extremely reliable.

The design of our server and storage solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging.

Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require.

For example, in the past certain vendors have provided us with defective components that failed under certain applications.

As a result, our products needed to be repaired, and we incurred costs in connection with the recall and diverted resources from other projects.

New flaws or limitations in our server and storage solutions may be detected in the future.

Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws.

If our customers discover defects or other performance problems with our products, our customers’ business, and our reputation, may be damaged.

Customers may elect to delay or withhold payment for defective or underperforming server and storage solutions, request remedial action, terminate contracts for untimely delivery, or elect not to order additional products, which could result in a decrease in revenue, an increase in our provision for doubtful accounts or in collection cycles for accounts receivable or subject us to the expense and risk of litigation.

We may incur expense in recalling, refurbishing or repairing defective server and storage solutions sold to our customers or remaining in our inventory.

If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed.

For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business.

SMCI | 2024 Form 10-K | 27

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.

The market for server and storage solutions is intensely competitive and rapidly changing.

The market continues to evolve with the growth of public cloud shifting server and storage purchasing from traditional data centers to lower margin public cloud vendors.

The market for server and storage solutions is intensely competitive and rapidly changing, particularly with the emergence of new markets (such as AI).

Barriers to entry in our market are relatively low and we expect increased challenges from existing as well as new competitors.

Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing pressures on sales of our server solutions.

We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for internet data center and cloud customers and other large sale opportunities.

We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for data center and cloud customers and other large sale opportunities.

If we are unable to maintain the margins on our server and storage solutions, our operating results could be negatively impacted.

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ODMs sell server solutions marketed or sold under a third-party brand.

SMCI | 2023 Form 10-K | 22

Many of our competitors enjoy substantial competitive advantages, such as:

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Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer.

These changes could have a significant impact on the market and impact our results of operations.

For all of these reasons, we may not be able to compete successfully against our current or future competitors, and if we do not compete effectively, our ability to increase our net sales may be impaired.

These changes could have a significant impact on the market and impact the results of operations.

For all these reasons, we may not be able to compete successfully against our current or future competitors, and if we do not compete effectively, our ability to increase our net sales may be impaired.

SMCI | 2024 Form 10-K | 28

The AI industry has driven a 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.

A portion of the recent success of our server and storage solutions has been dependent on the integration of our products and services within the AI industry.

However, the global AI market is subject to significant risks and uncertainties, such as evolving regulatory constraints, industry standards and ethical and legal considerations.

Additionally, the AI market itself has not yet been fully established and can be influenced by a multitude of factors, such as market needs, legal changes and economic conditions.

To the extent the AI market changes or declines, our business and results of operations could be materially and adversely impacted.

Our workforce may use AI tools on an unauthorized basis which poses additional risks relating to the protection of data, including the potential exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property.

Use of AI technology by our workforce may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open-source software requirements.

AI technology may also produce inaccurate responses that could lead to errors in our decision-making, solution development or other business activities, which could have a negative impact on our business, operating results and financial condition.

Our ability to mitigate these risks will depend on our continued effective training, monitoring and enforcement of appropriate policies and procedures governing the use of AI technology, and compliance by our workforce.

Our results of operations may be subject to fluctuations based upon our investment in corporate ventures and other investments we make.

We have a 30% minority interest in a China corporate venture that was established to market and sell corporate venture branded systems in China based upon products and technology we supply.

We record earnings and losses from the corporate venture using the equity method of accounting.

Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2024 and 2023 was $4.6 million and $2.0 million, respectively.

We currently do not intend to make any additional investment in this corporate venture.

See Note 10, “Related Party Transactions” in the Notes to the Consolidated Financial Statements in this Annual Report.

We do not control this corporate venture and any fluctuation in the results of operations of the corporate venture or any other similar transaction that we may enter into in the future could adversely impact, or result in fluctuations in, our results of operations.

In June 2020, the third-party parent company that controls our corporate venture was placed on a U.S.

government export control list, along with several related entities.

In addition, the United States has further prohibitions on conducting business with certain entities in China, continued to impose additional tariffs, and has placed export control restrictions on products which contain high-end GPUs.

If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, or if additional export control restrictions are placed on additional products, it may further affect the value of our investment in the corporate venture.

In addition, during fiscal year 2024, we made investments into additional companies, many of which are early stage companies or private companies still defining their strategic direction, several of which are also in emergent markets (such as AI).

We may continue to invest in private companies to further our strategic objectives and to support certain key business initiatives.

Many of the instruments in which we invest are non-marketable and illiquid at the time of our initial investment, and we are not always able to achieve a return.

To the extent any of the companies in which we invest are not successful, we could recognize an impairment and/or lose all or part of our investment.

In addition, we have also made some limited investments in public companies, and any investments we make in such companies could create volatility in our results and may generate losses up to the value of the investment.

Our growth into markets outside the United States exposes us to risks inherent in international business operations.

We market and sell our systems and subsystems and accessories both inside and outside the United States.

We have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan and Malaysia to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations.

SMCI | 2024 Form 10-K | 29

Our international expansion efforts may not be successful.

Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

• Heightened price sensitivity from customers in emerging markets;

• Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets;

• Localization of our systems and components, including translation into foreign languages and the associated expenses;

• Compliance with multiple, conflicting and changing governmental laws and regulations (including rapid developments in the area of export control particularly for high-end restricted GPU products);

• Foreign currency fluctuations and inflation;

• Limited visibility into sales of our products by our channel partners;

• Greater concentration of competitors in some foreign markets than in the United States;

• Laws favoring local competitors;

• Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights;

• Market disruptions created by world events, such as a global economic downturn, regional conflicts, or by other public health crises (such as COVID-19, avian flu, SARS and other diseases);

• Import and export tariffs;

• Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions;

• Changing regional economic and political conditions.

These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations.

Industry consolidation may lead to increased competition and may harm our operating results.

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As such, acquisitions by our competitors could also lead to more variability in our operating results and could have a material adverse effect on our business, operating results, and financial condition.

We must work closely with our suppliers to make timely new product introductions.

We have no long-term agreements that obligate our suppliers to continue to work with us or to supply us with products.

SMCI | 2023 Form 10-K | 23

Our suppliers’ failure to improve the functionality and performance of materials and key components for our products may impair or delay our ability to deliver innovative products to our customers.

We need our material and key component suppliers, such as Intel, AMD and NVIDIA, to provide us with components that are innovative, reliable and attractive to our customers.

If our suppliers’ components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected.

We rely on a limited number of suppliers for certain components used to manufacture our products.

Certain components used in the manufacture of our products are available from a limited number of suppliers.

Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain (such as did occur in connection with the COVID-19 pandemic, the global economic downturn, and recent events in eastern Europe) or increased demand in the industry (such as did occur due to volatility in emergent and rapidly evolving markets, including AI).

Similar future events may cause additional interruptions on the global supply chain.

Two of our suppliers accounted for 13.5% and 30.7% of total purchases for the fiscal year ended June 30, 2023.

The same two suppliers accounted for 18.1% and 11.4% of total purchases for the fiscal year ended June 30, 2022.

The same two suppliers accounted for 20.3% and 11.8% of total purchases for the fiscal years ended June 30, 2021.

Ablecom and Compuware, related parties, accounted for 6.6% , 8.3% and 7.8% of our total cost of sales for the fiscal years ended June 30, 2023, 2022 and 2021, respectively.

If any of our largest suppliers discontinue their operations or if our relationships with them are adversely impacted, we could experience a material adverse effect on our business, results of operations and financial condition.

See also “— Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.”

We rely on indirect sales channels and any disruption in these channels could adversely affect our sales.

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Our indirect sales channel partners could also modify their business practices, such as payment terms, inventory levels or order patterns.

If we are unable to maintain successful relationships in our indirect sales channel or expand our channel or we experience unexpected changes in payment terms, inventory levels or other practices in our indirect sales channel, our business will suffer.

Our business may suffer if we are unable to maintain relationships or expand our indirect sales channel.

We may experience unexpected changes in payment terms, inventory levels or other practices.

SMCI | 2024 Form 10-K | 30

Our failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.

Our server and storage solutions are critical to our customers’ business operations.

Our customers require our server and storage solutions to perform at a high level, contain valuable features and be extremely reliable.

The design of our server and storage solutions is sophisticated and complex, and the process for manufacturing, assembling and testing our server solutions is challenging.

Occasionally, our design or manufacturing processes may fail to deliver products of the quality that our customers require.

For example, in the past certain vendors have provided us with defective components that failed under certain applications.

As a result, our products needed to be repaired and we incurred costs in connection with the recall and diverted resources from other projects.

New flaws or limitations in our server and storage solutions may be detected in the future.

Part of our strategy is to bring new products to market quickly, and first-generation products may have a higher likelihood of containing undetected flaws.

If our customers discover defects or other performance problems with our products, our customers’ businesses, and our reputation, may be damaged.

We may incur expense in recalling, refurbishing or repairing defective server and storage solutions sold to our customers or remaining in our inventory.

If we do not properly address customer concerns about our products, our reputation and relationships with our customers may be harmed.

For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business.

Our results of operations may be subject to fluctuations based upon our investment in corporate ventures.

We have a 30% minority interest in a China corporate venture that was established to market and sell corporate venture branded systems in China based upon products and technology we supply.

We record earnings and losses from the corporate venture using the equity method of accounting.

Our loss exposure is limited to the remainder of our equity investment in the corporate venture which as of June 30, 2023 and 2022 was $2.0 million and $5.3 million, respectively.

We currently do not intend to make any additional investment in this corporate venture.

See Part II, Item 8, Note 9, “Related Party Transactions” to the consolidated financial statements in this Annual Report.

We may make investments in other corporate ventures.

In June 2020, the third-party parent company that controls our corporate venture was placed on a U.S.

government export control list, along with several related entities.

In addition, the United States has further prohibitions on conducting business with certain entities in China and continued to impose additional tariffs.

If economic conditions or trade disputes, including trade restrictions and tariffs such as those between the United States and China, in the areas in which we market and sell our products and other key potential markets for our products continue to remain uncertain or deteriorate, it may further affect the value of our investment in the corporate venture.

Legal and Regulatory Risks

We have been, are currently, and may in the future be subject to various lawsuits and other legal proceedings, disputes, claims, and government inquiries and investigations, which could cause us to incur substantial costs or require us to change our business practices in a way that could seriously harm our business.

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.

For example, in late 2024, the Company received subpoenas from the Department of Justice and the Securities and Exchange Commission seeking a variety of documents following the publication in a short seller report which was published in August 2024.

The Company is cooperating with these document requests and no charges have been brought as of the date of this filing.

In addition, 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 reputation, and require us to incur significant legal fees, other litigation costs and settlement costs, as well as other expenses.

In addition, our insurance may not be adequate to protect us from all material expenses related to pending and future claims.

Any of these factors could materially and adversely affect our business, financial condition, and results of operations.

Our operations are impacted by complex laws, rules 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 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 the trade sanctions enforced by the U.S.

Treasury, Office of Foreign Assets Control and the export controls enforced by the U.S.

Commerce Department’s Bureau of Industry and Security.

If we fail to comply with laws and regulations restricting dealings with sanctioned countries or companies and/or persons on restricted lists, 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 and elsewhere in eastern Europe 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 export-controlled items and technologies, and may impose new or more-restrictive export 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 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 local 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 | 2024 Form 10-K | 31

Such restrictions could include additional unilateral or multilateral 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.

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 even though competitors may not be subject to similar restrictions, creating a competitive disadvantage for us and negatively impacting our business and financial results.

Export controls targeting products containing GPUs and semiconductors associated with AI have subjected and may in the future subject downstream users of our products 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.

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 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 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.

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.

SMCI | 2024 Form 10-K | 32

In the event 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 a 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 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.

Although we attempt to ensure that we, our suppliers, resellers, and partners comply with the applicable import, export, and sanctions laws, we cannot guarantee full compliance by all.

Actions of our 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.

Any such potential violation by us, our 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.

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.

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The CPRA also establishes the California Privacy Protection Agency, which has the power to implement and enforce the CCPA and CPRA through administrative actions, including administrative fines.

The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.

The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses to comply and increase our potential exposure to regulatory enforcement and/or litigation.

states have also enacted data privacy laws that began to take effect in 2023 and impose similar privacy obligations to the CCPA and CPRA.

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In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could materially adversely affect our business, results of operations and financial condition.

Furthermore, applicable data privacy and security obligations may require us to notify relevant stakeholders, including affected individuals, customers, regulators and investors, of security incidents, and mandatory disclosure of such incidents could lead to negative publicity.

SMCI | 2024 Form 10-K | 34

Any failure to protect our intellectual property rights, trade secrets and technical know-how could impair our brand and our competitiveness.

Our ability to prevent competitors from gaining access to our technology is essential to our success.

If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete.

Trademark, patent, copyright and trade secret laws in the United States and other jurisdictions as well as our internal confidentiality procedures and contractual provisions are the core of our efforts to protect our proprietary technology and our brand.

Our patents and other intellectual property rights may be challenged by others or invalidated through administrative process or litigation, and we may initiate claims or litigation against third parties for infringement of our proprietary rights.

Such administrative proceedings and litigation are inherently uncertain and divert resources that could be put towards other business priorities.

We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property.

Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.

Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available.

The laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate.

Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property and using our technology for their competitive advantage.

Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition.

Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition.

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These requirements and best practices can affect the cost and ease of sourcing minerals used in the manufacture of electronics.

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.

Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report and attestation from our independent registered public accountant on our internal control over financial reporting.

Both our evaluation and the external attestation have and will continue to increase our and our independent public accountant costs and expenses.

In the past, we have had one or more material weaknesses, which we have remediated.

If we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective, which could cause our stock price to decline.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

If we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated.

If we identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease.

We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, penalties, trading suspensions or other remedies.

SMCI | 2024 Form 10-K | 35

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In addition, other applicable anti-corruption laws prohibit bribery of domestic government officials, and some laws that may apply to our operations prohibit commercial bribery, including giving or receiving improper payments to or from non-government parties, as well as so-called “facilitation” payments.

In addition, we are subject to U.S.

and other applicable trade control regulations that restrict with whom we may transact business, including the trade sanctions enforced by the U.S.

Treasury, Office of Foreign Assets Control.

If we fail to comply with laws and regulations restricting dealings with sanctioned countries or companies and/or persons on restricted lists, 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 and elsewhere in eastern Europe who have been, or may in the future be, added to the 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.

Further escalations in trade restrictions or hostilities, particularly between the United States and China, could impede our ability to sell or support our products.

We do not sell products or provide services to the Russian Federal Security Service (the “FSB”).

We had last recorded revenue from Russia on February 23, 2022.

In addition, while we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S.

trade control laws, our employees or agents have in the past engaged and may in the future engage in improper conduct for which we could be held responsible.

In addition, while we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, our employees or agents may engage in improper conduct for which we could be held responsible.

If we, or our employees or agents acting on our behalf, are found to have engaged in practices that violate these laws and regulations, we could suffer severe fines and penalties, profit disgorgement, injunctions on future conduct, securities litigation, bans on transacting government business and other consequences that may have a material adverse effect on our business, results of operations and financial condition.

In addition, our brand and reputation, our sales activities or our stock price could be adversely affected if we become the subject of any negative publicity related to actual or potential violations of anti-corruption, anti-bribery or trade control laws and regulations.

Any failure to protect our intellectual property rights, trade secrets and technical know-how could impair our brand and our competitiveness.

Our ability to prevent competitors from gaining access to our technology is essential to our success.

If we fail to protect our intellectual property rights adequately, we may lose an important advantage in the markets in which we compete.

Such administrative proceedings and litigation are inherently uncertain and divert resources that could be put towards other business priorities.

We may not be able to obtain a favorable outcome and may spend considerable resources in our efforts to defend and protect our intellectual property.

SMCI | 2023 Form 10-K | 28

Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain.

Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our products are available.

Any such infringement or misappropriation could have a material adverse effect on our business, results of operations and financial condition.

Resolution of claims that we have violated or may violate the intellectual property rights of others could require us to indemnify our customers, indirect sales channel partners or vendors, redesign our products, or pay significant royalties to third parties, and materially harm our business.

Our industry is marked by a large number of patents, copyrights, trade secrets and trademarks and by frequent litigation based on allegations of infringement or other violation of intellectual property rights.

Our primary competitors have substantially greater numbers of issued patents than we have which may position us less favorably in the event of any claims or litigation with them.

Other third parties have in the past sent us correspondence regarding their intellectual property or filed claims that our products infringe or violate third parties’ intellectual property rights.

In addition, increasingly non-operating companies are purchasing patents and bringing claims against technology companies.

We have been subject to several such claims and may be subject to such claims in the future.

Successful intellectual property claims against us from others could result in significant financial liability or prevent us from operating our business or portions of our business as we currently conduct it or as we may later conduct it.

In addition, resolution of claims may require us to redesign our technology to obtain licenses to use intellectual property belonging to third parties, which we may not be able to obtain on reasonable terms, to cease using the technology covered by those rights, and to indemnify our customers, indirect sales channel partners or vendors.

Any claim, regardless of its merits, could be expensive and time consuming to defend against, and divert the attention of our technical and management resources.

Provisions of our certificate of incorporation and bylaws and Delaware law might 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.

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SMCI | 2024 Form 10-K | 36

Government implemented an outbound investment review mechanism effective January 2, 2025, which may prevent us from taking advantage of investment opportunities outside the United States that could otherwise be advantageous to our stockholders.

On October 28, 2024, the Office of Investment Security of the U.S.

Department of the Treasury issued a final rule to implement President Biden’s August 2023 Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (the “EO”).

The EO provided for the establishment of a new and targeted national security regulatory framework directed at controlling outbound investment from the United States in certain sensitive industry sectors in China (including Hong Kong and Macau), effective January 2, 2025.

The new framework imposes notification requirements and prohibitions on specified investments by U.S.

persons in the semiconductor and microelectronics sector, quantum information technologies, and artificial intelligence systems.

Within the semiconductor and microelectronics sector, prohibited investments will include certain covered investments in electronic design automation software;

certain fabrication and advanced packaging tools;

the design, fabrication, or packaging of certain advanced integrated circuits, and supercomputers.

Notifiable investments will include any covered investments related to the design, fabrication, or packaging of integrated circuits not otherwise covered by the prohibition.

Given the breadth of the notification requirement as applicable within the semiconductor industry, we will likely be subject to increased regulatory burden to engage in certain investments in China.

Such a mechanism could negatively impact our ability to realize value from certain existing and future investments, including by limiting exit opportunities or causing us to favor buyers that may avoid complex notification requirements, even in circumstances where other buyers may offer better terms or more consideration.

There can be no assurances that we will be able to maintain or proceed with investments on terms acceptable to us.

It is possible that the outbound investment reporting requirements and prohibitions could adversely affect our business, financial condition, and operating results.

Financial Risks

Our indebtedness, liabilities, and other contractual obligations could limit the cash flow available for our operations, expose us to risks that could adversely affect our business, financial condition and results of operations and impair our ability to meet those obligations.

As of June 30, 2024, we had approximately $2.2 billion of consolidated indebtedness, including $1.7 billion principal amount of the 2029 Convertible Notes.

As of January 31, 2025, we had approximately $1.9 billion of consolidated indebtedness, including $1.7 billion principal amount of our 2029 Convertible Notes and on February 20, 2025, we issued $700.0 million aggregate principal amount of our 2028 Convertible Notes.

We may also incur additional indebtedness to meet future financing needs.

Our indebtedness could have significant negative consequences for our security holders and our business, results of operations and financial condition by, among other things:

• Increasing our vulnerability to adverse economic and industry conditions;

• Limiting our ability to obtain additional financing;

• Requiring the dedication of a substantial portion of our cash flow from operations to service our indebtedness, which will reduce the amount of cash available for other purposes

• Limiting our flexibility to plan for, or react to, changes in our business;

• Diluting the interests of our existing stockholders as a result of issuing shares of our common stock upon conversion of the 2029 Convertible Notes or 2028 Convertible Notes, as applicable;

• Placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital.

SMCI | 2024 Form 10-K | 37

Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves to pay amounts due under our indebtedness, including the Convertible Notes, as well as other contractual obligations.

For example, in connection with the MCSA we entered into in June 2024, we executed a long-term data center space from a supplier and concurrently sublicensed all of our rights and obligations related to such data center space to another party.

While we are charging an additional monthly charge to the party to whom we are sublicensing the data center space, on top of the estimated over $600.0 million financial obligation we have to the supplier for the term of the lease for the data center space, no assurances can be given that this arrangement will be successful or profitable, particularly if the party to whom we are sublicensing the data center space defaults on its obligations to us.

If we are unsuccessful in recovering our costs related to our lease of data center space, or if we are otherwise unable to meet our obligations under the MCSA, our business, financial condition, and results of operations may be adversely affected.

For more information about the MCSA and the data center space lease arrangements, see Part I, Item 1.

“Business - Data Center Space Lease” and Note 13, “Commitments and Contingencies” in the Notes to the Consolidated Financial Statements.

Additionally, we plan to continue making significant investments to support our business growth and may require additional funds to address business challenges.

Our future capital requirements may vary materially from those currently planned and will depend on many factors including our growth rate and the continuing market acceptance of our products.

Any future indebtedness that we may incur may contain financial and other restrictive covenants and obligations that limit our ability to operate our business, raise capital or make payments under our other indebtedness or contractual obligations.

Failure to comply with these covenants or obligations, or to make required payments on time, could result in a default or material breach, potentially accelerating the repayment of that debt or resulting in the breach of contracts, which could in turn harm our business.

See also, “Risks Related to our Delinquent SEC Reporting Obligations.”

We may be unable to raise the funds necessary to repurchase the 2029 Convertible Notes or the 2028 Convertible Notes for cash following a fundamental change, to repay the outstanding principal and accrued interest upon an event of default, or to pay any cash amounts due upon conversion, and there may be other limits on our ability to repurchase the 2029 Convertible Notes or 2028 Convertible Notes or pay cash upon their conversion.

Noteholders may require us to repurchase their 2029 Convertible Notes or 2028 Convertible Notes, as applicable, following a fundamental change (as defined in the respective indenture for such notes, which includes the delisting of our common stock) at a cash repurchase price generally equal to the principal amount of the relevant series of convertible notes to be repurchased, plus accrued and unpaid interest.

Upon an event of default (as defined in the indenture for such notes), we may be required to repay the outstanding principal amount of the 2029 Convertible Notes or the 2028 Convertible Notes, plus accrued and unpaid interest.

In addition, upon conversion, we will satisfy part or all of our conversion obligations in cash unless we elect to settle conversions solely in shares of our common stock (other than cash in lieu of any fractional shares).

We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the 2029 Convertible Notes or the 2028 Convertible Notes, repay the amounts owed under the relevant convertible notes in an event of default, or pay any cash amounts due upon conversion.

Our ability to pay cash upon conversion of the relevant series of convertible notes depends in part on our future performance, which is subject to economic, financial, competitive and other factors including, but not limited to, rising inflation, elevated interest rates, and other negative macroeconomic factors, some of which are out of our control.

Our business may not generate cash flow to service our debt.

If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive, which could have a material adverse effect on our financial condition.

In addition, applicable law, regulatory authorities and agreements governing our other indebtedness may restrict our ability to repurchase the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, or pay any cash amounts due upon conversion.

Our failure to repurchase the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, or pay any cash amounts due upon conversion when required will constitute a default under the 2029 Convertible Notes Indenture or the indenture governing the 2028 Convertible Notes (the “2028 Convertible Notes Indenture”), as applicable.

A default under the 2029 Convertible Notes Indenture or the 2028 Convertible Notes Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.

We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the 2029 Convertible Notes or the 2028 Convertible Notes.

See also, “Risks Related to our Delinquent SEC Reporting Obligations.”

SMCI | 2024 Form 10-K | 38

Provisions in the 2029 Convertible Notes Indenture and the 2028 Convertible Notes Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the 2029 Convertible Notes, the 2028 Convertible Notes, and the indentures governing such convertible notes could make a third-party attempt to acquire us more difficult or expensive.

For example, if a takeover constitutes a fundamental change, then noteholders will have the right to require us to repurchase their convertible notes for cash.

In addition, if a takeover constitutes a make-whole fundamental change (as defined in the 2029 Convertible Notes Indenture and the 2028 Convertible Notes Indenture, as applicable), then we may be required to temporarily increase the conversion rate of the 2029 Convertible Notes or 2028 Convertible Notes, as applicable, which could increase the cash cost of acquiring us or increase dilution to the potential acquiror.

In either case, and in other cases, our obligations under the 2029 Convertible Notes, the 2028 Convertible Notes, the 2029 Convertible Notes Indenture, and the 2028 Convertible Notes Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that noteholders or holders of our common stock may view as favorable.

The capped call transactions entered into in connection with the issuance of the 2029 Convertible Notes may affect our common stock.

In connection with the offering of the 2029 Convertible Notes, we entered into privately negotiated capped call transactions with the capped call counterparties.

The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2029 Convertible Notes or offset any potential cash payments we are required to make in excess of the principal amount of converted 2029 Convertible Notes, as the case may be, with such reduction or offset subject to a cap.

In connection with the amendment of the 2029 Convertible Notes, we entered into agreements to amend certain terms of the capped call transactions.

Following such amendment of the capped call transactions, the capped call counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2029 Convertible Notes (and are likely to do so during any observation period related to a conversion of 2029 Convertible Notes or following any repurchase of the 2029 Convertible Notes by us to the extent we elect to unwind a corresponding portion of the capped call transactions in connection with such repurchase).

This activity could also cause or avoid an increase or a decrease in the market price of our common stock.

In addition, if any capped call counterparties or their respective affiliates unwind their hedge positions with respect to our common stock, it could adversely affect the value of our common stock.

We do not make any representation or prediction as to the direction or magnitude of any potential effect that the transactions described above may have on the price of our common stock.

In addition, we do not make any representation that the capped call counterparties will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

We are subject to counterparty risk with respect to the capped call transactions, and the capped call transactions may not operate as planned.

The capped call counterparties are, or are affiliates of, financial institutions, and we will be subject to the risk that they might default under the capped call transactions.

Our exposure to the credit risk of the capped call counterparties will not be secured by any collateral.

Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions.

If a capped call counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings with a claim equal to our exposure at that time under our transactions with that capped call counterparty.

Our exposure will depend on many factors, but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our common stock.

In addition, upon a default by a capped call counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.

We can provide no assurances as to the financial stability or viability of any capped call counterparty.

In addition, the capped call transactions are complex, and they may not operate as planned.

For example, the terms of the capped call transactions may be subject to adjustment, modification or, in some cases, renegotiation if certain corporate or other transactions occur, including in connection with the amendment to the 2029 Convertible Notes, which lowered the applicable cap price to align with the amended terms of the 2029 Convertible Notes.

Accordingly, these transactions may not operate as we intend if we are required to adjust their terms as a result of transactions in the future or upon unanticipated developments that may adversely affect the functioning of the capped call transactions.

SMCI | 2024 Form 10-K | 39

Conversion of our 2029 Convertible Notes or 2028 Convertible Notes may dilute the ownership interest of existing stockholders or may otherwise depress the price of our common stock.

Despite the entry into the capped call transactions in connection with the 2029 Convertible Notes, the conversion of some or all of the 2029 Convertible Notes or the conversion of some or all of the 2028 Convertible Notes, to the extent we deliver shares upon conversion, will likely dilute the ownership interests of existing stockholders.

We did not enter into equivalent capped call transactions with respect to the 2028 Convertible Notes, so we do not have any protection against dilution or cash payments upon conversion of the 2028 Convertible Notes above the applicable conversion price.

Any sales in the public market of the 2029 Convertible Notes or the 2028 Convertible Notes or our common stock issuable upon conversion of the relevant convertible notes could adversely affect prevailing market prices of our common stock.

In addition, the existence of the 2029 Convertible Notes or the 2028 Convertible Notes may encourage short selling by market participants because the conversion of the 2029 Convertible Notes or the 2028 Convertible Notes could be used to satisfy short positions, or anticipated conversion of the 2029 Convertible Notes or the 2028 Convertible Notes into shares of our common stock could depress the price of our common stock.

Our research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors and our earnings will depend upon maintaining revenues and margins that offset these expenditures.

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Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors.

If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such investment in research and development, our earnings may be materially and adversely affected.

Our future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows.

If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such an investment in research and development, our earnings may be materially and adversely affected.

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 receive significant tax benefits from sales to our non-U.S.

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Future changes in domestic or international tax laws and regulations or a change in how we manage our international operations could adversely affect our ability to continue realizing these tax benefits.

Many countries around the world are beginning to implement legislation and other guidance to align their international tax rules with the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting recommendations and related action plans that aim to standardize and modernize global corporate tax policy, including changes to cross-border tax, transfer-pricing documentation rules and nexus-based tax incentive practices.

As a result, many of these changes, if enacted, could increase our worldwide effective tax rate and harm our operating results, financial condition, and cash flows.

Our effective tax rate could also be adversely affected by changes in tax laws and regulations and interpretations of such laws and regulations, which in turn would negatively impact our earnings and cash and cash equivalent balances we currently maintain.

Additionally, our effective tax rate could also be adversely affected if there is a change in international operations, our tax structure and how our operations are managed and structured, and as a result, we could experience harm to our operating results and financial condition.

In recent years, numerous legislative, judicial, and administrative changes have been made to tax laws applicable to us and similar companies.

The Organization for Economic Co-operation and Development (the “OECD”) has introduced a framework to implement a global minimum corporate tax of 15% applicable to large multinational corporations, referred to as Pillar Two or the minimum tax directive.

Many countries, including countries in which we operate, have enacted or are in the process of enacting laws based on the Pillar Two proposal that will start to become effective for our fiscal year ending June 30, 2025 (“fiscal year 2025”).

While we do not currently expect the minimum tax directive to have a material impact on our effective tax rate, our analysis is ongoing as the OECD continues to release additional guidance and countries implement legislation.

To the extent additional changes take place in the countries in which we operate, it is possible that these legislative changes and efforts may increase uncertainty and have an adverse impact on our effective tax rates or operations.

Our future effective tax rate may also be affected by a variety of factors, including changes in our business or statutory rates, our mix of earnings in countries with differing statutory tax rates, available tax incentives, credits and deductions, the expiration of statutes of limitations, changes in accounting principles, adjustments to income taxes upon finalization of tax returns, increases in expenses not deductible for tax purposes, the estimates of our deferred tax assets and liabilities and deferred tax asset valuation allowances, changing interpretation of existing laws or regulations, the impact of accounting for business combinations, as well as changes in the domestic or international organization of our business and structure.

Furthermore, the tax effects of accounting for stock-based compensation and volatility in our stock price may significantly impact our effective tax rate in the period in which they occur.

An increase in our stock price may result in increased future tax benefits from stock-based compensation, decrease our effective tax rate and positively affect our financial results.

Conversely, a decline in our stock price may result in reduced future tax benefits from stock-based compensation, increase our effective tax rate and adversely affect our financial results.

SMCI | 2024 Form 10-K | 40

Backlog does not provide a substantial portion of our net sales in any quarter.

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Risks Related to Owning Our Stock

The trading price of our common stock is likely to be volatile, and you might not be able to sell your shares at or above the price at which you purchased the shares.

The trading price of our common stock has been and is likely to be volatile.

The trading prices of technology company securities historically have been highly volatile.

In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe.

In addition, the global markets have been volatile, and experienced volatility as a result of matters such as the prior COVID-19 pandemic, a global economic downturn and regional conflict.

The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations.

Factors, in addition to those outlined elsewhere in this filing, that may affect the trading price of our common stock include:

• The circumstances discussed in the Explanatory Note in this Annual Report;

• If our common stock is delisted or the possibility thereof;

• False or misleading press releases or articles regarding our company or our products, including the Report and similar publications;

• Actual or anticipated variations in our operating results, including failure to achieve previously provided guidance;

SMCI | 2023 Form 10-K | 30

• Announcements of technological innovations, new products or product enhancements, strategic alliances or significant agreements by us or by our competitors;

• Continued rapid evolution of the markets in which we compete, including AI;

• Changes in recommendations by any securities analysts that elect to follow our common stock;

• The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

• False or misleading press releases or articles regarding our company or our products;

• The loss of a key customer;

• The loss of a key customer or supplier;

• The loss of key personnel;

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• Lawsuits filed against us;

• Changes in laws or regulations applicable to us (including export control regulations) ;

• Increased scrutiny from stockholders, regulators, and others regarding our corporate sustainability practices;

• Changes in operating performance and stock market valuations of other companies that sell similar products;

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• Other events or factors, including those resulting from war, incidents of terrorism, political instability, pandemics or responses to these events.

Future sales of shares by existing stockholders, including any shares that have vested or may in the future vest under the 2021 CEO Performance Award, could cause our stock price to decline.

Attempts by existing stockholders to sell substantial amounts of our common stock in the public market could cause the trading price of our common stock to decline significantly.

All of our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act.

In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying the 2021 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements.

SMCI | 2024 Form 10-K | 41

Future sales of shares by existing stockholders, including any shares that have vested or may in the future vest under each of the 2021 CEO Performance Award and the 2023 CEO Performance Award, could cause our stock price to decline.

Attempts by existing stockholders to sell substantial amounts of our common stock on the public market could cause the trading price of our common stock to decline significantly.

All our shares are eligible for sale in the public market, including shares held by directors, executive officers and other affiliates, sales of which are subject to volume limitations and other requirements under Rule 144 under the Securities Act.

In addition, shares subject to outstanding options and reserved for future issuance under our stock option plans, including those underlying each of the 2021 CEO Performance Award and the 2023 CEO Performance Award that have vested or vest in the future, are eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements.

See “Item 11.

Executive Compensation – Compensation Discussion and Analysis (“CD&A”) – Fiscal Year 2024 CEO Compensation – Discussion and Analysis of 2023 CEO Performance Award.” If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.

Furthermore, additional tranches of the 2021 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the “Annualized Revenue Milestones”) and a matching stock price milestone, and if such additional tranches do vest, they would be subject to the risks discussed above.

In connection therewith, the Company has determined that the Annualized Revenue Milestones that have not yet been achieved are “probable of achievement,” for purposes of determining whether to recognize expense associated with the applicable tranche.

The 10,000,000 shares of our common stock underlying the 2021 CEO Performance Award have fully vested and are subject to the risks discussed above.

Furthermore, tranches of the 2023 CEO Performance Award may vest, subject to the achievement of specified annualized revenue milestones (the “Annualized Revenue Milestones”) and a matching stock price milestone, and if such tranches do vest, they would be subject to the risks discussed above.

In connection therewith, the Company has determined that all five Annualized Revenue Milestones specified in the 2023 CEO Performance Award are “probable of achievement,” for purposes of determining whether to recognize expense associated with the applicable tranche.

Such determination is based upon management’s subjective judgment and is not a guarantee that it will be achieved.

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The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.

As of July 31, 2023, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 42.3% of our common stock, net of treasury stock.

As of January 31, 2025, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 38.5% of our common stock, net of treasury stock.

As a result, these stockholders, acting together, have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions.

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This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

We do not expect to pay any cash dividends for the foreseeable future.

We do not expect to pay any cash dividends in the foreseeable future.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future.

In addition, under the terms of the credit agreement with Bank of America, dated April 19, 2018, we cannot pay any dividends, with limited exceptions.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

SMCI | 2023 Form 10-K | 31

General Risks

Our products may not be viewed as supporting climate change mitigation in the IT sector.

Our ability to create energy saving products will be a part of climate change mitigation, and we believe one of the keys to our business success.

Our ability to create energy saving products will be a part of climate change mitigation, and we believe it is one of the keys to our business success.

In addition, climate change reporting and product certification are increasingly sought by customers and regulators.

If we do not satisfy customer requirements for products that help mitigate climate change, and document how they contribute to such change, it could have a material adverse impact on our business, operating results, and financial conditions.

SMCI | 2024 Form 10-K | 42

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.

Many governments, regulators, investors, employees, customers and other stakeholders are increasingly focused on environmental, social and governance considerations relating to businesses, including climate change and greenhouse gas emissions, human capital and diversity, equity and inclusion.

We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications.

Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties and requires ongoing investments.

The success of our goals and initiatives may be impacted by factors that are outside our control.

In addition, some stakeholders may disagree with our goals and initiatives and the focus and views of stakeholders may change and evolve over time and vary depending on the jurisdictions in which we operate.

Also, we and our suppliers are subject to, and may become subject to, evolving laws and regulations pertaining to ESG matters.

Changing rules and regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations.

Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, make complete or accurate statements with respect to such matters, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price.

Our business and operations may be impacted by natural disaster events, including those brought on by climate change.

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We are also in the process of developing manufacturing operations in Malaysia.

Each region is subject to climate change events and known for earthquakes.

Each region is subject to climate change events and is known for earthquakes.

For example, extreme heat and wind coupled with dry conditions in Northern California may lead to power safety shut offs due to wildfire risk, which can have adverse implications for our San Jose, California headquarter offices, including impairing the ability of our employees to work effectively.

While we have adopted a business continuity plan and are taking steps to further diversify our manufacturing locations, there is no certainty it will be effective for significant natural disasters, which could have a material adverse impact on business, operating results, and financial condition.

The use of AI by our workforce may present risks to our business.

Expectations relating to environmental, social and governance considerations expose us to potential liabilities, reputational harm and other unforeseen adverse effects on our business.

We make statements about our environmental, social and governance goals and initiatives through information provided on our website, press statements and other communications Responding to these environmental, social and governance considerations and implementation of these goals and initiatives involves risks and uncertainties and requires ongoing investments.

The success of our goals and initiatives may be impacted by factors that are outside our control.

Any failure, or perceived failure, by us to achieve our goals, further our initiatives, adhere to our public statements, comply with federal, state or international environmental, social and governance laws and regulations, or meet evolving and varied stakeholder expectations and views could materially adversely affect our business, reputation, results of operations, financial position and stock price.

Unresolved Staff Comments

Growing concerns over climate change may also lead to transition risks, such as changes in customer preferences or changing regulatory and legal requirements.

Shifts in customer preferences could increase demand for more sustainable solutions and services, potentially forcing us to incur additional costs or alter our operations to meet these demands.

Additionally, we may face increased costs for supplies or components that meet specific regulatory standards, potentially affecting the pricing of our products.

If we fail to manage these transition risks, customer demand for our products and services could decrease.

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 1A. Risk Factors