Super Micro Computer Under Scrutiny

Stock Performance
Super Micro Computer (NASDAQ: SMCI) shares dropped approximately 6% in New York trading after a critical report was published by short seller Hindenburg Research.

Concerns Raised by Hindenburg Research
The report raised multiple issues regarding Super Micro’s accounting practices and corporate governance, which may alarm investors and shareholders.

SMCI, a server manufacturer valued at $35 billion, has faced scrutiny since it was delisted from Nasdaq in 2018 for failing to file financial statements. Following a $17.5 million settlement with the SEC for accounting violations in August 2020, Hindenburg alleges the company resumed questionable practices soon after.

Allegations
Among the allegations are:
– Improper revenue recognition
– Rehiring of executives involved in past scandals

The report claims, “Less than three months after the $17.5 million SEC settlement, Super Micro began rehiring top executives directly linked to the accounting scandal, as indicated by litigation records and former employee interviews.”

Related Party Relationships
Another concern highlighted by Hindenburg Research concerns Super Micro’s affiliation with related parties. Reportedly, CEO Charles Liang’s brothers control suppliers Ablecom and Compuware, which have allegedly received $983 million over three years. These relationships raise potential issues regarding revenue recognition and reported margins due to undisclosed transactions.

Sanctions Compliance
Super Micro’s integrity has also been called into question concerning dealings with sanctioned nations. Although the company pleaded guilty in 2006 for exporting unlawful components to Iran, and assured compliance with U.S. export bans to Russia after the Ukraine conflict, the report suggests that exports to Russia have increased, potentially breaching sanctions.

Customer Issues
Furthermore, competition and quality concerns have led to the loss of significant customers. Major clients like Nvidia (NASDAQ: NVDA), CoreWeave, and Tesla (NASDAQ: TSLA) have decreased their reliance on Super Micro, opting instead for competitors like Dell (NYSE: DELL).

Quality and service issues have further damaged the company’s reputation, with several clients reporting high rates of product malfunctions and service-related problems.