SMCi post business update review. Breakdown of issues into either good and bad (no neutral).
Good:
1. No restatement of accounts. Any restatement would have implications for the convertible bonds and evolve a great domino effect.
2. On track to file outstanding and upcoming Nasdaq returns on time. This is a very important development. Anything else would rock its financial standing again.
3. Project roughly 60% growth next fiscal year. I'm rather puzzled with the large increase only to materialize next year. SMCI seems to be planning new plants with the new capital and projecting unfettered growth in the AI server industry.
4. DOJ and legal challenges update. Reinforced view that they are unmeritorious. I wouldn't worried about these issues. Worst scenario would be to pay settlement fees.
5. Appleased 2024 convertible bonds holders with amended terms namely 3.5% coupon instead of zero coupon and raising.comversion price by 5%. I classify this annual US$59.5m cost as a good appleasement settlement to remove the lingering legal challenges surrounding it.
6. Issue more shares to new convertible bond holders. There's dilution but it only happens when share price is 50% more. For current shareholders in the present state, it is more good than bad. Assume new capital to be used to achieve US$40b revenue target in 2026.
Bad:
1. Walk back on revenue forecast. Lowered its revenue guidance for fiscal 2025 to $23.5 billion to $25 billion from its previous forecast of$26 billion to $30 billion.
2. Margins narrowed to .of 11.8% to 11.9%. from 13.3% last quarter. Margins should expect to regain with Malaysia plant and economy of scale but would face pressure with competition from Dell, HPE etc.
Share price should find stability at upwards of PE 20. Using 0.51c/Q, $2.04/Y gives $40.80. Forget about the $100s or the $70s for the near future.
For jest:
Breaking News...
SMCI resurrected after dodging 2 bullets (Nasdaq deadline and financial reports restatement uncertainty) but shed revenue forecast; rearmoured itself with more borrowed cash and appleased riotous convertible bond holders to upgear for a 60% revenue rocket boosted acceleration next year.
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