Super Micro Misses 10-K Filing Amidst Scandal Allegations
Super Micro Computer Inc. (NASDAQ: SMCI), once a high-flying darling of the AI hardware market, is facing intense scrutiny after failing to file its annual financial report for the fiscal year ending June 30, 2024. The delay comes at a time when the company is under fire from short-seller Hindenburg Research, which has raised serious allegations of financial misreporting, export violations, and conflicts of interest involving company leadership.
Previously, the company disclosed that it would not meet the deadline for filing its 10-K annual report due to the need for additional time to assess the effectiveness of its internal controls over financial reporting. The company said it would file a Notification of Late Filing (Form 12b-25), which allows for an extension.
Super Micro’s stock is down more than 65% from its all-time high in March 2024, reflecting growing investor concern over the company’s financial stability and governance.
Hindenburg Research
At the heart of the turmoil are the serious allegations brought forward by Hindenburg Research, a firm notorious for taking on major corporations and triggering dramatic stock market drops with its damning reports. On August 28, 2024, Hindenburg published a 19,000-word report accusing Super Micro of a range of malpractices, from accounting irregularities to violating U.S. export controls.
Hindenburg’s report points to “glaring accounting red flags,” which it claims result in inflated revenues and profit margins for Super Micro. Specifically, the report alleges that the company is still engaging in revenue recognition practices that led to a $17.5 million settlement with the Securities and Exchange Commission in 2020. That settlement had resolved previous accusations of “widespread accounting violations” dating back to 2015-2017.
According to Hindenburg, just months after the settlement, Super Micro began rehiring executives involved in those violations.
A former salesperson interviewed by Hindenburg was quoted saying: “Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance.” These claims raise concerns that past behaviors could continue to plague the company’s financial integrity.
Allegations of export control violations
More damning are the accusations that Super Micro has been selling high-tech components to Russia, in direct violation of U.S. export bans imposed after Russia’s invasion of Ukraine. According to Hindenburg’s report, Super Micro’s exports to Russia have increased threefold since the conflict began, raising alarms about the potential military use of these components.
“Exports of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import/export transactions,” the report claims.
The company, which has long positioned itself as a critical supplier of data center hardware, including servers and networking equipment, has also been accused of shipping sensitive technologies to China, further complicating its standing with U.S. regulators. If proven true, these actions could lead to significant legal repercussions, including potential sanctions or fines from the U.S. government.
Alleged conflicts of interest
Hindenburg also highlighted potential conflicts of interest involving CEO Charles Liang’s family. The report notes that Super Micro has paid nearly $1 billion to two suppliers—Ablecom and Compuware—over the past three years. Both companies are controlled by Liang’s brothers, Steve and Bill Liang, who hold significant stakes and leadership roles in these firms.
According to trade records reviewed by Hindenburg, 99.8% of Ablecom’s exports to the U.S. and 99.7% of Compuware’s U.S. exports went directly to Super Micro. These transactions, while not illegal, raise questions about transparency and corporate governance at Super Micro. Hindenburg’s report suggests these relationships create a “circular” flow of business that may not be in the best interest of shareholders.
Super Micro’s recent troubles are not its first brush with controversy. In 2018, the company was delisted from the Nasdaq after failing to file financial reports on time, a move that left investors skittish. The subsequent SEC investigation into accounting malpractices further damaged its reputation, although the company’s stock managed to rebound, driven by the explosion of AI and cloud computing that boosted demand for its products.
Super Micro’s financial growth had been nothing short of meteoric in recent years. The company’s revenue hit a record $7.12 billion in fiscal year 2023, propelled by skyrocketing demand for AI data centers. Its stock soared over 6,000% from 2019 to 2024, and it was even added to the S&P 500 in March 2024. However, this period of rapid growth may have hidden underlying issues, which are now being laid bare by Hindenburg’s detailed report.
Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
