Did Super Micro Computer's Troubles Just Deepen?
Earlier this year, Super Micro Computer (NASDAQ: SMCI) reigned with Nvidia as the market’s best-performing stocks. Supermicro advanced 188% in the first half, while Nvidia climbed 149%.
Why did this 30-year-old company suddenly jump into the limelight? The equipment maker, providing elements like servers for artificial intelligence (AI) data centers, saw its earnings soar amid the AI boom.
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But this growth story dimmed in recent times as troubles for the company started piling up, and all of this has led to a more than 60% drop in the stock since late August. A short report alleged problems at Supermicro, a newspaper article spoke of a possible Justice Department investigation, and just recently, Supermicro auditor Ernst & Young resigned from the job.
At the same time, Supermicro has fallen behind in financial reporting, and several weeks ago, it said its 10-K annual report would be late. And just this week, the company said it would be unable to file its report for the quarter ended Sept. 30 on time. Did Supermicro’s troubles just deepen?
First, a bit of detail on the various headwinds, starting with the short report, released in late August. In the document, Hindenburg Research alleged a variety of troubles, including “glaring accounting red flags.” It’s important to keep in mind that at the time of the report, Hindenburg held a short position in Supermicro, so it would benefit if the stock fell. This bias makes it difficult for investors to rely on Hindenburg as a source of information regarding the equipment maker.
The Wall Street Journal later reported of a probe into Supermicro launched by the Justice Department. Both the U.S. attorney’s office and the company declined to comment.
Finally, auditor Ernst & Young, after questioning the company’s internal controls back in July, recently resigned, saying it’s “unwilling to be associated with the financial statements prepared by management.” The Supermicro board appointed an independent special committee to review the situation, and just recently, the committee said, “there is no evidence of fraud or misconduct on the part of management or the Board of Directors.” Though the committee hasn’t officially completed its review, these words represent some good news for Supermicro and its shareholders.
Meanwhile, Supermicro informed the Securities and Exchange Commission (SEC) that it would be late filing its 10-K annual report, a move that prompted Nasdaq to send the company a non-compliance letter. Supermicro now has until Nov. 16 to either file or present a plan to regain compliance. Non-compliance eventually results in delisting, an outcome that definitely would be bad news.
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