Super Micro’s Stock Slide: Hindenburg’s Report Raises Red Flags
During Tuesday’s New York trading session, shares of Super Micro Computer (NASDAQ:SMCI) saw a decline of around 6%. This decline was a direct result of the release of a negative report by Hindenburg Research, a short seller.
Several concerns have been identified by the research firm regarding the company’s accounting practices and corporate governance. These findings could potentially cause concern for investors and shareholders.
SMCI, a server maker valued at $35 billion, has come under scrutiny after being delisted from Nasdaq in 2018 for failing to file financial statements. Following a $17.5 million settlement with the SEC in August 2020 for accounting violations, it appears that Hindenburg may have continued to partake in questionable practices shortly thereafter.
There have been claims of questionable revenue recognition practices and the rehiring of executives with a history of involvement in accounting scandals.
Super Micro has made the unexpected decision to re-hire key executives who were previously involved in the accounting scandal, shortly after resolving a $17.5 million SEC case. A concise report states that this information has been uncovered through litigation records and interviews with former employees.
Super Micro’s connections with affiliated entities have raised additional concerns, as highlighted by Hindenburg Research.
Reports suggest that suppliers Ablecom and Compuware have received a substantial payment of $983 million over the course of three years. There are allegations that these suppliers are under the control of the brothers of Super Micro CEO Charles Liang. The Hindenburg report has raised concerns regarding undisclosed transactions and their potential impact on revenue recognition and reported margins. It characterizes these relationships as circular and potentially risky.
There have been raised concerns regarding Super Micro’s integrity in its interactions with sanctioned countries. Despite a previous guilty plea for exporting banned components to Iran in 2006 and assurances of compliance with U.S. export bans to Russia after the Ukraine invasion, the report suggests that exports to Russia have increased, possibly violating sanctions.
The report emphasizes the effects of competition and quality concerns, leading to the loss of significant customers. Prominent companies like Nvidia, CoreWeave, and Tesla have opted to reduce their reliance on Super Micro and instead explore alternative options such as Dell.
Reports have surfaced regarding customer service and product reliability concerns, which have had a detrimental effect on the company’s reputation. Several clients have been experiencing frequent malfunctions and service problems.
