In a dramatic turn of events, Super Micro Computer's stock, identified by the ticker symbol $SMCI, experienced a significant downturn during Wednesday's trading session, following an unexpected announcement about the delay in filing its annual Form 10-K report. This decision comes on the heels of a pointed accusation from short-seller Hindenburg Research, which claimed the company was involved in "accounting manipulation." The manufacturer of artificial intelligence servers disclosed that it is unlikely to meet the deadline for submitting its annual report for the fiscal year that concluded on June 30.
The company stated, "Additional time is needed for Super Micro's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30." This announcement rang alarm bells among investors, leading to a staggering decline in Super Micro's share price—down nearly 20% in the late-afternoon trading on Wednesday.
Despite this setback, it is noteworthy that the stock has still enjoyed an impressive rise of 55% year-to-date. Hindenburg's investigation, which spanned three months, uncovered numerous troubling findings within Super Micro. These included significant "accounting red flags," potential undisclosed related party transactions, sanctions violations, export control failures, and various customer issues.
This unsettling report raised questions about the company's financial integrity and operational transparency. Additionally, Hindenburg noted that Super Micro faced a temporary delisting from the Nasdaq exchange in 2018 due to its failure to submit required financial statements. The Securities and Exchange Commission (SEC) subsequently charged the company with "widespread accounting violations," exacerbating concerns amongst investors and regulators alike. Among other allegations, Hindenburg indicated that just under three months after Super Micro paid a $17.5 million settlement to the SEC, it rehired key executives who were closely associated with the previous accounting scandal.
This move raised eyebrows, as it suggested a lack of accountability and oversight in addressing past transgressions. In the report, Hindenburg went so far as to state, "While the company gained an initial lead in supporting the AI industry, it seems to be cutting corners on its accounting, sanctions compliance, and product quality, all while more credible competitors eat away at its margins and market share." As of Wednesday's trading session, Super Micro has not provided any further updates to its fiscal fourth-quarter and full-year financial outcomes, which were previously revealed earlier this month.
Notably, the company has maintained a reputation for having "an aggressive sales culture," according to Wedbush Securities analyst Matt Bryson. He expressed that this culture likely contributed to the relatively minor shifts in revenue accounting that led to the company's delisting and subsequent financial restatements in 2018 and 2019. Bryson, writing in a note on Wednesday, opined, "While we see this culture as necessarily creating risk that employees push too hard to book deals to achieve targets, we certainly don't see this risk as new." Furthermore, he expressed skepticism, stating that it would be "very surprising" if Super Micro engaged in sales with any entity currently restricted by U.S.
regulations. He elaborated that the company itself possesses "little control" over where its servers eventually end up after the initial sale. As the revelations unfold, investors in Super Micro Computer should remain vigilant and consider the implications of these events on their investment strategies moving forward.
The company's future viability may hinge on how effectively it can address these accounting issues and regain investor confidence..