Penguin Solutions, Inc.

Penguin Solutions operates at the intersection of data center AI infrastructure and memory solutions, positioning itself as the AI Factory Platform Company that designs, builds, deploys, and manages next-generation data centers for enterprises, sovereign AI initiatives, and neocloud providers. The markets served are characterized by rapid technological change, product obsolescence, frequent new product introductions, evolving industry standards, and intense competition from large domestic and international companies with substantially greater financial, technical, marketing, distribution, and other resources. The memory markets in which the Integrated Memory segment participates have historically been characterized by fluctuations in average selling prices, with transitions to smaller design geometries and other factors causing overcapacity that has led to significant increases in worldwide supply of memory components and, when not accompanied by demand increases, significant declines in component prices and profit margins. The markets in which the company competes have been highly cyclical and have experienced significant downturns often connected with maturing product lifecycles and declines in general economic conditions, characterized by diminished product demand, production overcapacity, high inventory levels, and accelerated erosion of selling prices and inventory values. China's stated national policy to be a global leader in all segments of the semiconductor industry by 2030 has resulted in and may continue to cause increased competitive capability in China. The AI and accelerated computing technologies, markets, and related demand trends are complex and rapidly evolving, with an evolving regulatory landscape, and public perception of AI and AI data centers has become increasingly negative in some communities, driven by concerns about energy consumption and electricity prices, water use, noise pollution, emissions, and job displacement, leading to local opposition, litigation, and political action against data center projects.

Across its business segments, principal competitors include data center AI infrastructure designers, integrators, and operators; memory pooling products for AI inferencing; compute and storage systems providers; specialty memory products providers; memory semiconductor manufacturers that also manufacture DRAM modules and Flash products; supply chain service providers including distributors and third-party logistics providers; semiconductor and subsystem manufacturers; embedded computing platforms and systems providers; providers of System-on-Modules and Single-Board Computers; LED product manufacturers; enterprise IT server vendors; and manufacturers of industrial computers. Within Advanced Computing, the company competes with global providers of AI infrastructure, compute systems, software, integration, and managed services, as well as manufacturers of enterprise servers and fault-tolerant computing solutions. Within Integrated Memory, it competes against memory module providers and, to a lesser extent, large semiconductor manufacturers that utilize a portion of their capacity to manufacture memory modules. Within Optimized LED, it competes with companies that manufacture and/or sell nitride-based LED chips as well as manufacturers of LED components concentrated primarily in indoor and outdoor lighting, specialty lighting including torch lamps, horticulture and color-changing architectural lighting, signs and signals, and transportation. Differentiation comes from integrating advanced compute, memory, infrastructure software, and end-to-end services into a unified AI Factory Platform, combining product innovation, deep technical expertise, and operational capabilities. Some competitors are also suppliers or customers. The principal competitive factors in these markets include the ability to meet customer-specific requirements and provide high product quality, strong technical support, technologically advanced products and services, advanced testing capabilities, flexible and global delivery options, reliable supply, and reasonable pricing.

Penguin Solutions generates revenue through three business segments: Advanced Computing, Integrated Memory, and Optimized LED. The Advanced Computing and Integrated Memory businesses are central to the AI Factory Platform strategy, combining expertise in AI infrastructure, advanced memory technologies, and end-to-end services. The Optimized LED segment, operating as Cree LED, serves a distinct market with a dedicated strategy focused on advancing high-performance LED technologies. Products are generally manufactured on a build-to-order basis, and product sales are made primarily pursuant to customer purchase orders and are not based on long-term supply agreements. In Advanced Computing, the company also enters into multi-year managed services engagements, which typically span three to five years and include ongoing infrastructure management, optimization, and support services. Products and solutions are sold directly and through third-party channels, including distributors, value-added resellers, independent software vendors, and systems integrators, to a diversified base of local and global OEM, enterprise, and government customers. In Advanced Computing, AI and HPC products are sold to enterprise and government customers in AI cloud services, energy, financial services, hyperscale, and education, and fault-tolerant computing products and services to enterprise customers in financial services, telecom, energy, transportation, healthcare, retail, and industrial automation. In Integrated Memory, memory solutions are sold to OEM customers in industrial, government, networking and communications, enterprise storage and compute, and other vertical markets. The Optimized LED segment sells LED chips and components to manufacturers and electronic component distributors, with a substantial portion sold to distributors that stock inventory. In 2026, 2025, and 2024, sales to the ten largest end customers accounted for 56% ¹, 66% ², and 58% ³ of total net sales, respectively. In 2026, 2025, and 2024, one ⁴, two ⁵, and one ⁶ customers accounted individually for over 10% of net sales, respectively. In 2026, one Integrated Memory customer accounted for approximately 20% ⁷ of net sales, while the Advanced Computing customer that accounted for approximately 18% ⁸ of net sales in each of 2025 and 2024, and a different Integrated Memory customer that accounted for approximately 14% ⁹ of net sales in 2025, did not account for more than 10% of net sales in 2026.

The Advanced Computing segment delivers AI infrastructure solutions through the Full-Stack AI Factory Platform, combining advanced compute systems, differentiated infrastructure software, and end-to-end services with partner technologies. The portfolio includes AI and HPC solutions under the Penguin Solutions and Penguin Computing brands, including ClusterWareAI AI factory operating system software, MemoryAI data center and AI inference solutions, ComputeAI GPU and CPU computing systems, and OriginAI reference architectures. Services span the AI infrastructure lifecycle from design and deployment to ongoing optimization and managed operations. The segment also offers high-availability and fault-tolerant computing solutions under the Stratus brand, including Stratus ztC platforms, Stratus ztC Endurance compute platforms designed to deliver 99.99999% ¹⁰ availability, Stratus ftServer platforms, Stratus ztC Edge, and Stratus everRun software. The Advanced Computing segment had net sales of $558.8 million ¹¹, $648.4 million ¹², and $554.6 million ¹³ in 2026, 2025, and 2024, respectively. In the fourth quarter of fiscal 2026, the company fully discontinued its Penguin Edge product portfolio, which previously combined SMART Embedded Computing and SMART Wireless Computing brands.

The Integrated Memory segment designs, develops, and delivers advanced memory and storage solutions addressing performance, capacity, and reliability requirements across AI infrastructure, high-performance computing, networking, and enterprise applications. The portfolio includes specialty memory and storage products sold under the SMART Modular Technologies brand, including DRAM modules, solid-state and flash storage solutions, and CXL-based memory expansion technologies. The segment also provides SMART Supply Chain Services, offering customized supply chain planning and execution solutions. The Integrated Memory segment had net sales of $924.0 million ¹⁴, $464.2 million ¹⁵, and $356.4 million ¹⁶ in 2026, 2025, and 2024, respectively. The Optimized LED segment offers a broad portfolio of application-optimized LEDs focused on improving lumen density, intensity, efficacy, optical control, and/or reliability, sold under the Cree LED brand, including blue and green LED chips based on gallium nitride and packaged LED components under the XLamp, J Series, and high-brightness product lines. The Optimized LED segment had net sales of $248.7 million ¹⁷, $256.1 million ¹⁸, and $259.8 million ¹⁹ in 2026, 2025, and 2024, respectively.

During the period, the company completed several significant operational and strategic developments. On October 15, 2024, the corporate name was changed from SMART Global Holdings, Inc. to Penguin Solutions, Inc. and the Nasdaq ticker symbol changed from SGH to PENG. On June 30, 2025, the company consummated the U.S. Domestication of the parent company from the Cayman Islands to the State of Delaware. On November 29, 2023, the company completed the divestiture of an 81% ²⁰ interest in SMART Brazil to Lexar Europe B.V., and during 2026 sold its remaining 19% ²¹ interest in SMART Brazil, subsequently renamed Zilia Technologies, completing the divestiture. In the fourth quarter of fiscal 2026, the company fully discontinued its Penguin Edge product portfolio. The company issued 200,000 ²² shares of convertible preferred stock of Penguin Solutions Delaware, par value $0.03 ²³ per share, designated as convertible preferred stock. On August 27, 2025, the company filed a registration statement for the resale from time to time of up to 6,096,103 ²⁴ shares of common stock by the selling securityholder, consisting of 6,096,103 ²⁵ shares of common stock initially issuable upon the conversion of the Issued CPS. As of August 28, 2026, the company owned or exclusively licensed approximately 1,619 ²⁶ patents, set to expire between 2026 and 2051, and had 531 ²⁷ pending patent applications. As of August 28, 2026, the company employed approximately 2,800 ²⁸ employees worldwide, with most located in the United States, China, and Malaysia, and had approximately 380 ²⁹ R&D personnel worldwide.

For fiscal 2026, total net sales were $1,731.5 million ³⁰, compared to $1,368.7 million ³¹ in fiscal 2025 and $1,170.8 million ³² in fiscal 2024. The Advanced Computing segment declined to $558.8 million in 2026 from $648.4 million in 2025, while Integrated Memory grew to $924.0 million from $464.2 million , and Optimized LED declined to $248.7 million from $256.1 million . R&D expenses were $81.7 million ³³, $79.8 million ³⁴, and $81.5 million ³⁵ in 2026, 2025, and 2024, respectively. In fiscal 2026, net cash used in operating activities was $151.9 million ³⁶, primarily due to increases in inventories and accounts receivable to support business growth. Capital expenditures were $11.6 million ³⁷, $9.0 million ³⁸, and $19.4 million ³⁹ in 2026, 2025, and 2024, respectively. As of August 28, 2026, goodwill was $145.9 million ⁴⁰, representing 5% ⁴¹ of total assets. Purchases from the two largest suppliers were $1.3 billion ⁴², $0.6 billion ⁴³, and $0.4 billion ⁴⁴ in each of 2026, 2025, and 2024, respectively. Sales outside of the United States accounted for 56% ⁴⁵, 43% ⁴⁶, and 43% ⁴⁷ of net sales in 2026, 2025, and 2024, respectively.

The company is making significant investments in AI initiatives, including designing, building, deploying, and managing AI and HPC infrastructure, and expects to continue to invest heavily in research and development for new and innovative products, including AI solutions. As AI shifts toward inference-centric workloads and agentic AI, the integrated Full-Stack AI Factory Platform approach is designed to improve token economics and maximize the return on AI investments. The company is developing additional MemoryAI capabilities intended to help customers improve GPU efficiency, optimize token economics, and maximize the return on their AI infrastructure investments, and is extending ClusterWareAI capabilities through Agentic Fabric development, designed to enable intelligent orchestration and coordinated operational workflows across compute, networking, storage, and workloads. The company has invested and expects to continue to invest significant time and capital into developing infrastructure, employee training, and marketing efforts to expand its services offerings.

Growth vectors include the expansion of the Full-Stack AI Factory Platform across infrastructure software, integrated memory, and compute systems and end-to-end services, serving enterprises, sovereign AI initiatives, and neocloud providers. The company plans to continue R&D focused on the innovation and design of new products that address customer needs, with a focus on faster-growing markets. The company plans to continue exploring additional acquisition opportunities in the future. The company also expects to continue to invest in manufacturing and test capacity as well as research and development, having spent $11.6 million on capital expenditures in 2026, $9.0 million in 2025, and $19.4 million in 2024. The company's business growth in 2026 contributed to increases in inventories and accounts receivable, which increased working capital requirements and negatively affected cash flows from operating activities, and large AI infrastructure deployments may require substantial upfront purchases of high-cost components and other expenditures before customer payment is received.

The company's financial performance depends in part on its customers' ability to finance AI infrastructure projects, as certain customers may depend on external financing, including government funding, to fund AI infrastructure deployments. If financing becomes unavailable, delayed, or more expensive, these customers may defer, reduce, or cancel orders, seek extended payment terms, or fail to pay amounts due. The company also faces the risk that public opposition to, or governmental restrictions on, the development of AI data centers by its customers could delay, downsize, or cancel customer projects or otherwise reduce demand for AI infrastructure. The company is required to repay a $93.0 million ⁴⁸ customer cash advance by the first week of December 2026, and $54.5 million ⁴⁹ of its 2029 Notes and 2030 Notes are convertible through November 27, 2026, with principal payable in cash upon conversion. While the company believes its existing cash and cash equivalents and amounts available under its revolving credit facility are sufficient to fund these obligations, if working capital needs grow or customers delay payment, it may need to draw on its revolving credit facility or seek additional financing, which may not be available on acceptable terms.

The company's margin trajectory is subject to fluctuations in average selling prices, particularly in Integrated Memory, where declines in average selling prices have in the past had, and may again in the future have, a material adverse effect on business, results of operations, and financial condition. Tariffs have increased materials costs, particularly in the LED business, and caused the company to raise prices, which it believes may have reduced demand. The company may be unable to offset increased costs without reducing margins or demand. The company's ability to maintain or improve manufacturing efficiency significantly affects results of operations, and during periods of implementing new process technologies, manufacturing facilities may not be fully productive and may experience higher than acceptable defect rates. The company has incurred, and may in the future incur, impairment charges related to goodwill, which was $145.9 million as of August 28, 2026, representing 5% of total assets.

The company's operational outlook includes managing supply chain posture amid global macroeconomic headwinds and evolving industry dynamics that have contributed to supply constraints across business segments, with supply challenges combined with geopolitical factors including tariffs increasing material costs and, in some cases, affecting delivery timelines. The company purchases a significant portion of materials from suppliers on a purchase order basis and generally does not have long-term commitments from suppliers. The company's manufacturing and testing facilities are primarily located in the United States, Malaysia, and China, with manufacturing facilities in Newark and Fremont, California and Penang, Malaysia supporting Integrated Memory and Advanced Computing operations, and a manufacturing facility in Huizhou, China for Optimized LED. The company's workforce strategy includes approximately 2,800 full-time employees as of August 28, 2026, and approximately 380 R&D personnel worldwide.

Capital allocation priorities include continued investment in research and development, which was $81.7 million in 2026, $79.8 million in 2025, and $81.5 million in 2024, and capital expenditures, which were $11.6 million in 2026, $9.0 million in 2025, and $19.4 million in 2024. The company does not anticipate paying any cash dividends on its common stock in the foreseeable future. The company may need to raise additional funds through public or private equity offerings and debt financings, and additional funds may not be available on terms acceptable to it, or at all. If the company issues equity or convertible debt securities to raise additional funds, existing stockholders may experience dilution.

Structural headwinds and execution risks management has flagged include the risk that the company may not achieve the intended benefits of the sale of its SMART Brazil business, and may incur liabilities relating to additional Brazilian withholding tax in connection with the sale. The company may not realize some or all of the anticipated benefits from the sale of its SMART Brazil business. The company also faces risks related to its indebtedness and short-term cash obligations, which could impair its financial condition and harm its ability to operate its business. The company's credit agreement contains restrictive covenants that limit its ability to engage in specified transactions and prohibit it from voluntarily prepaying certain of its other indebtedness. The company is also subject to risks related to its international operations, including compliance with numerous changing and sometimes conflicting legal regimes, changes in social, political, and economic conditions, transportation delays, power and other utility shutdowns or shortages, limitations on foreign investment, disruptions in or lack of adequate infrastructure, challenges protecting intellectual property and trade secrets, exchange or currency controls and fluctuations, increased trade wars, corruption or adverse political situations, and governmental intervention in local economies, industries, or the operations of specific companies.

Geographic, regulatory, and macro factors management identified as constraints include the impact of tariffs and other trade restrictions or taxes, which have had in the past and could have in the future an adverse impact on the business, results of operations, and financial condition. Since early 2025, the United States has imposed new tariffs and increased or modified existing tariffs on goods from China, Malaysia, and other countries. In February 2026, the U.S. Supreme Court held that the International Emergency Economic Powers Act did not authorize the President to impose tariffs, invalidating tariffs previously imposed under that statute. Temporary tariffs subsequently imposed under Section 122 of the Trade Act of 1974 expired in July 2026, while the United States has imposed or pursued additional tariffs under Section 232 of the Trade Expansion Act of 1962 and Section 301 of the Trade Act of 1974. Certain tariff measures remain subject to litigation, administrative proceedings, or further changes. Although refund procedures have been established for certain previously paid tariffs, the availability, timing, and amount of refunds remain uncertain. Other countries, including China, have imposed or are considering retaliatory tariffs, export controls, and other trade restrictions, and the terms and duration of trade arrangements remain uncertain.

The most material risks to Penguin Solutions include customer concentration, with sales to the ten largest end customers accounting for 56% of net sales in 2026, 66% in 2025, and 58% in 2024, and one Integrated Memory customer accounting for approximately 20% of net sales in 2026. Advanced Computing net sales decreased in 2026 in part because large hyperscale hardware sales to a significant customer in 2025 did not reoccur. The company depends on a small number of sole or limited source suppliers, with purchases from its two largest suppliers totaling $1.3 billion in 2026, $0.6 billion in 2025, and $0.4 billion in 2024. The company has significant indebtedness, including $1,022.4 million ⁵⁰ of total debt as of August 28, 2026, and near-term cash obligations including a $93.0 million customer cash advance repayable by the first week of December 2026 and $54.5 million of 2029 Notes and 2030 Notes convertible through November 27, 2026, with principal payable in cash upon conversion. In fiscal 2026, net cash used in operating activities was $151.9 million , primarily due to increases in inventories and accounts receivable to support business growth. The company has goodwill of $145.9 million , representing 5% of total assets, and may incur impairment charges if projected growth in its AI infrastructure business is not achieved. Tariffs have increased materials costs, particularly in the LED business, and caused the company to raise prices, which it believes may have reduced demand. The company may incur liabilities relating to additional Brazilian withholding tax in connection with the sale of its SMART Brazil business, and the amount of such additional withholding taxes and its liability could be substantial.

Management's message to shareholders emphasizes the company's transformation into the AI Factory Platform Company, with a strategic focus on designing, building, deploying, and managing next-generation data centers for enterprises, sovereign AI initiatives, and neocloud providers. The company's Full-Stack AI Factory Platform combines differentiated infrastructure software, advanced memory, compute systems, end-to-end services, and industry-leading partner technologies to help customers accelerate deployment, optimize token economics, and maximize the return on their AI investments. Management has chosen to emphasize three strategic priorities for the period ahead: first, the continued development and expansion of the Full-Stack AI Factory Platform, including infrastructure software, integrated memory, and compute systems and end-to-end services; second, the focus on higher-growth opportunities, as reflected in the decision to fully discontinue the Penguin Edge product portfolio in the fourth quarter of fiscal 2026; and third, the completion of strategic portfolio actions, including the divestiture of SMART Brazil and the U.S. Domestication. The company's business growth in 2026 contributed to increases in inventories and accounts receivable, which increased working capital requirements and negatively affected cash flows from operating activities, with net cash used in operating activities of $151.9 million in fiscal 2026. Management believes that existing cash and cash equivalents and amounts available under the revolving credit facility are sufficient to fund near-term obligations, including the repayment of a $93.0 million customer cash advance by the first week of December 2026 and $54.5 million of 2029 Notes and 2030 Notes convertible through November 27, 2026, with principal payable in cash upon conversion. The company continues to invest in research and development, with R&D expenses of $81.7 million in 2026, $79.8 million in 2025, and $81.5 million in 2024, and capital expenditures of $11.6 million in 2026, $9.0 million in 2025, and $19.4 million in 2024. The company does not anticipate paying any cash dividends on its common stock in the foreseeable future.