Super Micro Computer's Shares Plunge 15% After Delaying 10-K Filing

Super Micro Computer Faces Share Drop

Shares of Super Micro Computer have taken a hit of over 15% as the server company announced a delay in its 10-K filing for FY 2024. This comes a day after Hindenburg Research, a short seller, claimed to have "fresh evidence" of accounting manipulation within the company. According to the company's filing, "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." The shares had already seen a drop of 8% the previous day, but managed to close the session with only a 2% loss.

Hindenburg Research's Allegations

Hindenburg Research released a report on its website on Tuesday morning alleging that the semiconductor/server company, which has seen its stock value increase significantly over the last few years, could be involved in accounting manipulation and self dealing among family members. The report, which is based on a 3-month investigation involving interviews with former senior employees and industry experts, as well as a review of litigation records, international corporate and customs records, found numerous accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.

Super Micro's Previous SEC Settlement

Less than three months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives that were directly involved in the accounting scandal, according to litigation records and interviews with former employees. A former salesperson stated, “Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance.” A lawsuit filed in April 2024 claims that Super Micro waited only three months after the SEC settlement before restarting “improper revenue recognition,” “recognizing incomplete sales,” and “circumvention of internal accounting controls”.

Alleged Dubious Accounting

The report also raises fresh questions about Super Micro’s revenue accounting and its relationships with both disclosed and undisclosed related parties. For instance, disclosed related party suppliers Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last three years. Ablecom is also partly owned by Super Micro CEO Charles Liang and his wife. The report also highlights that Super Micro provides components to these entities which assemble them and sell them back to Super Micro, and they also rent warehousing and factory space to Super Micro despite it having its own factory.

Customer Retention Issues

Multiple former employees and channel partners confirmed that after-sales service is undermining Super Micro’s ability to retain customers. One former salesperson said: 'It’s their Achilles heel. It’s just horrible.' The report concludes by stating, "All told, we believe 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."

Bottom Line

The allegations against Super Micro Computer are serious and could have far-reaching implications for the company's future. The delay in the 10-K filing and the subsequent drop in share prices are indicative of the challenges the company is currently facing. The question remains: how will Super Micro respond to these allegations and what steps will it take to regain investor confidence? We would love to hear your thoughts on this matter. Don't forget to share this article with your friends and sign up for the Daily Briefing which is everyday at 6pm.