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Contributors: Douglas McIntyre Jon C. Ogg

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Thursday, November 02, 2006

IPO Filing: Super Micro Computer, a Server Company

Super Micro Computer, Inc. has filed for an IPO of the company stock. It will trade under proposed ticker SMCI on NASDAQ. Underwriters listed are Morgan Stanley, Merrill Lynch, UBS, and Needham.

It lists up to $150 million as the proposed sale amount for the IPO, but that number can change as many of these filing sizes are meant solely for initial registration costs with the SEC. Share sales will be from holders and from the company. It will repay a $19.2 million existing building loan, and the rest from the company will be for general corporate purposes.

The company began operations in 1993 and claims that it has been profitable every year since inception. For fiscal year 2004, 2005 and 2006, it listed net sales as $167.1 million, $211.8 million and $302.5 million, respectively and our net income was $4.9 million, $7.1 million and $16.9 million, respectively.

Here is the consolidated balance sheet as of June 30, 2006:

Cash and cash equivalents $16,509
Working capital $37,026
Total assets $131,001
Long-term obligations $18,685
Total stockholder equity $47,767

Here is the description from the San Jose, California-based company itself: We design, develop, manufacture and sell application optimized, high performance server solutions based on an innovative, modular and open-standard x86 architecture. Our solutions include a range of complete server systems, as well as components which can be used by distributors, OEMs and end customers to assemble server systems. To date, we have generated the majority of our net sales from components. Since 2000, we have gradually shifted our focus and resources to designing, developing, manufacturing and selling application optimized server systems. As of June 30, 2006, we offered over 3,500 SKUs, including SKUs for server systems, serverboards, chassis and power supplies and other system accessories.

If it sounds like Rackable Systems (RACK), that is no surprise. Rackable has a patent case against the company with claims that it infringes two of its patents. Tatung Company in Taiwan owns 9% of the company and directors and management appear to control 55.6% of the company, but we will confirm ownership and expand that area with the management as the IPO date gets closer.

It appears that the only hurdle for this IPO is that suit with Rackable Systems (RACK). As long as that doesn't end up essentially changing the company on a forward operating basis this company will have no problems coming out of the chute. The net effects may not be known yet, so it would be worth hearing how they address this on their road show and it would be worth a call to Rackable.

Jon C. Ogg
November 2, 2006

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