Riding the wave of AI, Super Micro Computer, known as the company behind NVIDIA, has become an AI "upstart".

Over the past year, Super Micro Computer (SMCI.US) stock price has skyrocketed. At the beginning of the year, the company exploded and soared blindly, hitting a record high in March; although it began to fall back, the cumulative increase during the year was still as high as 92%.

However, Super Micro has recently been targeted by Hindenburg, a well-known short-selling institution, and has fallen into a new "storm."

Hindenburg "Sniper" Super Micro

On August 27, local time, Hindenburg, a well-known short-selling institution in the United States, released a report on short-selling Advanced Micro Computer, which aroused the vigilance of investors and shareholders.

The report pointed out that a three-month investigation into Super Micro found a series of problems including "accounting practices, evidence of undisclosed related-party transactions, violations of export bans, and customer churn."

Accounting irregularities

As early as 2018, Super Micro was suspended from trading by Nasdaq for failing to file financial statements, and was subsequently accused of widespread accounting irregularities by the U.S. Securities and Exchange Commission. The SEC investigation found that the company had "widespread accounting irregularities" related to improper revenue recognition and underestimation of expenses of more than $200 million, resulting in inflated sales, earnings and profit margins.

The Hindenburg report emphasized that after reaching a $17.5 million settlement agreement with the US Securities and Exchange Commission, Supermicro rehired executives involved in the accounting scandal in less than three months.

Hindenburg's report further alleges that Super Micro resumed "improper revenue recognition," "recognition of uncompleted sales," and "circumvention of internal accounting controls" shortly after the SEC settlement.The report suggested that pressure to sell quotas led to problematic behaviors such as "partial shipments" and shipping defective products. Former employees report that the company's internal culture has not improved since the SEC charges.

Related party transactions

Hindenburg said Super Micro paid $983 million over the past three years to two related-party suppliers controlled by CEO Charles Liang's brother and partly owned by Liang and his wife. These entities supplied components to Super Micro and then bought them back, raising concerns in Hindenburg about Super Micro's ring trading and accounting integrity, further deepening doubts about corporate governance and compliance.

Evade sanctions

In 2006, Super Micro admitted to exporting prohibited components to Iran. Although the company claims to have learned from past mistakes, Hindenburg's report still raises concerns about possible practices of current Super Micro computers.

Super Micro claims to have stopped selling products to Russia after the Russia-Ukraine conflict in February 2022, but data in the Hindenburg report shows that Super Micro was involved in about 45,000 transactions exporting high-tech components to Russia, many of which dealt with Super Micro The companies producing the products are now subject to U.S. sanctions, which violate U.S. export bans. These exports have reportedly tripled since the outbreak of the war in Ukraine.

Decline in competitiveness

In addition to these issues, the report notes that Super Micro also faces challenges in maintaining key partnerships. As a major chip supplier, Nvidia publicly supported Super Micro's competitor Dell in May 2024. CoreWeave and Tesla, which were once important customers of Super Micro, have transferred their business to Dell, which has further affected Super Micro's market position.

Super Micro responds

Super Micro Computer (SMCI.US) said on Wednesday that it does not expect to file its annual report with the U.S. Securities and Exchange Commission (SEC) on time for the fiscal year ending June 30, 2024, and expects to file on August 30, 2024. Notice of Late Filing of Annual Report.

According to media reports, the company stated that management needs additional time to complete an assessment of the design and operational effectiveness of the company’s internal controls over financial reporting as of June 30, 2024. Super Micro has not yet provided an update on its results for the fiscal year and quarter ending June 30, 2024, which were announced in a press release on August 6, 2024.

It's unclear whether Super Micro's decision was related to Hindenburg's short-selling report. Asked about Hindenburg's allegations, the company said it does not comment on false rumors and speculation.Under the dual influence, Super Micro Computer's US stock market plunged more than 8% during the session on Tuesday, closing down 2.64% at US$547.64; it continued to plummet 19% on Wednesday, with the latest price of US$443.49 per share, and a total market value of 23.463 billion US dollars.

JPMorgan analysts said in a note on Tuesday that the Hindenburg short-selling report had "limited detail" on the accounting manipulation, but it did point to areas where Super Micro needs to improve in terms of corporate governance and transparency. "We believe the report largely lacks details about the company's alleged misconduct that alters its medium-term outlook and largely revisits known areas of corporate governance and transparency that need improvement. 

Some analysts pointed out that after carefully studying the Hindenburg short-selling report, in addition to re-examining Super Micro's accounting irregularities in 2020, the evidence for various other accusations is not solid enough.