SMCI Stock Falls After Delayed Annual Report

SMCI stock fell after the company said it would delay the filing of its annual report, the announcement comes a day after short-seller Hindenburg Research.

Super Micro Computer Stock plunged after the company delayed filing its annual report.”SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense. Additional time is needed for SMCI’s management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024, said the company in the press release.”

The statement comes a day after short-seller Hindenburg’s research claimed Accounting Manipulation, Sibling Self-Dealing, And Sanctions Evasion At This AI High Flyer.

Super Micro Computer Inc. is an information technology company that provides server management software, storage systems, data centers, cloud computing, artificial intelligence, 5g, and edge computing. The major customers of the company are Nvidia, AMD, and Intel.

Analysts said that Hindenburg’s claims are tough to verify and the report is largely void of details about alleged wrongdoings of the company. They also said that communicating with investors and establishing clear governance and transparency will bring back the investor’s trust.

According to analysts, there is limited evidence of accounting manipulation and limited new information relative to the existing and already-known business relationship with related companies owned by the siblings of the founder of Super Micro Computer Inc.

Hindenburg Research Allegations

• The 3-month investigation, which included interviews with former senior employees and industry experts as well as a review of litigation records, and international corporate and customs records, found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.
• Less than 3 months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives who were directly involved in the accounting scandal, per litigation records and interviews with former employees.
• According to a lawsuit filed in April 2024, Super Micro waited only 3 months after the SEC settlement before restarting “improper revenue recognition,” “recognizing incomplete sales,” and “circumvention of internal accounting controls”.
• A former salesperson described pushing products to distributors based on made-up demand forecasts, completing a partial shipment, and then later coming up with an excuse for why the rest didn’t happen. “And now you have a problem. Accounting problem maybe.”
• Beyond fresh questions around its revenue accounting, Hindenburg found that Super Micro’s relationships with both disclosed and undisclosed related parties serve as fertile ground for dubious accounting. For example, disclosed related party suppliers Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last 3 years. Ablecom is also partly owned by Super Micro CEO Charles Liang and his wife.
• The relationships seem oddly circular. Super Micro provides components to the entities that assemble them and sell them back to Super Micro. They also rent warehousing and factory space to Super Micro even though it has its own sprawling factory.
• Another brother of Super Micro’s CEO operates a disclosed related party but is also the director and shareholder of undisclosed Hong Kong and Taiwanese entities, which appear to resell Super Micro products and provide “professional OEM services.” It operates out of the same building as related party Compuware. Collectively, disclosed and undisclosed related parties pose accounting risks relating to revenue recognition and reported margins.
• In addition to the CEO’s brothers, the company has an odd relationship with a key customer. In February 2024, Super Micro made an undisclosed investment in tech startup Lambda Labs as part of its $320 million funding round, per Bloomberg and per a confirmation Hindenburg received from Lambda’s COO. In August 2024, Super Micro signed an “unusual” $600 million contract to lease space at a California data center and sub-lease it to Lambda. The CFO glossed over questions about the reason for this arrangement.
• Super Micro has claimed its liquid cooling technology will “revolutionize the industry” and is its “competitive edge.” But at a recent industry conference, Super Micro featured related party Ablecom’s liquid cooling solutions, per an Ablecom engineer. Ablecom has several patents for its liquid cooling technology. Despite this, Super Micro has never disclosed any related party involvement in its liquid cooling technology.
• Exports of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to a Hindenburg review of more than 45,000 import/export transactions. Almost two-thirds of Super Micro’s exports to Russia since the invasion correspond to “high priority” components that the Russian military may be diverting to the battlefield, per U.S. government warnings.
• Since 2016, Super Micro has had a joint venture with a Chinese state-run company called Fiberhome, which is involved in a campaign of “human rights violations and abuses,” high-tech surveillance, and repression of ethnic communities in western China, per the U.S. government
• All told, Hindenburg believes Super Micro is a serial recidivist. It benefitted as an early mover but still faces significant accounting, governance, and compliance issues and offers an inferior product and service now being eroded away by more credible competition.

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