SMCI Q1 2026 Earnings: Revenue Dips Amid Major Geographic Shift to Asia

Super Micro Computer (SMCI), a major force in the high-performance server market that powers much of the AI revolution, recently released its financial results for the first quarter of fiscal year 2026. This report gives us a fresh look into the company's performance during a dynamic period for the tech industry. Let's dig into the numbers from their latest 10-Q filing with the SEC to see what they tell us.

For the three months ended September 30, 2025, SMCI reported net sales of $5.02 billion. This represents a 15.5% decrease from the $5.94 billion generated in the same quarter last year. While revenue saw a pullback, the pressure on profitability was even more pronounced.

The following flow diagram provides a clear visualization of how the company's revenue for the quarter was allocated across costs and expenses, ultimately leading to its net income.

Profitability Under Pressure

A key story from this quarter's report is the squeeze on margins. SMCI's gross profit fell by nearly 40% to $467 million, down from $776 million in the prior-year period. This caused the company's gross margin—the percentage of revenue left after accounting for the cost of goods sold—to contract significantly, falling to 9.3% from 13.1%. According to the company, this decline was primarily "due to a change in product and customer mix."

This pressure trickled down to the bottom line. Despite operating expenses increasing by 7% to $285 million, the lower gross profit led to a sharp drop in operating income. Ultimately, net income for the quarter was $168 million, a steep decline from the $424 million earned a year earlier. This translated to a diluted earnings per share (EPS) of $0.26, compared to $0.67 in the first quarter of fiscal 2025.

A Striking Geographic Shift

Perhaps the most dramatic development revealed in the filing is a massive pivot in the company's geographic sales distribution.

• United States: Sales in the U.S., historically the company's stronghold, plummeted by 56.7% to $1.83 billion. This region now only accounts for 36.6% of total revenue, a stark drop from 71.4% a year ago.
• Asia: In contrast, sales in Asia surged by an impressive 142.9% to $2.32 billion. This explosive growth has made Asia the company's largest market, now representing 46.2% of total sales, up from just 16.1% previously. Sales to Malaysia and Indonesia, in particular, grew to over $1.1 billion and $578 million, respectively.

This realignment suggests a significant change in where demand for SMCI's products is originating, shifting decisively from West to East.

Cash Flow and Inventory Build-Up

The company's cash flow statement also reveals important trends. SMCI experienced a net cash outflow from operating activities of $917.5 million for the quarter. This is a reversal from the same period last year when it generated $408.9 million in cash. A primary driver for this was a substantial $1.09 billion increase in inventories. This, combined with a $321 million increase in accounts receivable, indicates that a significant amount of cash was tied up in working capital during the quarter. The company ended the period with $4.2 billion in cash and cash equivalents, down from $5.2 billion at the end of the previous quarter.

In summary, Super Micro's latest quarter was one of significant transition. While the company is grappling with lower overall revenue and compressed margins, it is also experiencing explosive growth in Asia. Investors will be closely watching whether this geographic pivot can offset challenges elsewhere and if the company can improve its profitability and manage its growing inventory levels in the quarters ahead.