TLDR:
- Super Micro stock fell after short seller Hindenburg Research released a critical report
- Hindenburg alleges accounting issues, related party transactions, and sanctions violations
- Super Micro recently settled with SEC over previous accounting violations
- The company has rehired executives involved in past accounting scandals
- Super Micro’s stock is down significantly from recent highs but still up 90% year-to-date
Super Micro Computer, a provider of servers and data center equipment that has benefited from the recent AI boom, is facing fresh allegations of impropriety from short-selling firm Hindenburg Research.
The accusations come as Super Micro’s stock has retreated from recent highs but remains up 90% year-to-date.
In a report released Tuesday, Hindenburg Research claims its three-month investigation uncovered evidence of accounting manipulation, undisclosed related party transactions, and violations of sanctions and export controls at Super Micro. The firm disclosed it has taken a short position in Super Micro stock.
Super Micro’s shares fell over 2% following the release of Hindenburg’s report. The company has not yet responded to requests for comment on the allegations.
Hindenburg’s report alleges that Super Micro has not improved its business practices despite a $17.5 million settlement with the SEC in 2020 over “widespread accounting violations.”
The firm claims Super Micro has rehired senior executives who left amid the previous accounting scandal.
According to Hindenburg, former employees and customers reported that salespeople were pressured to meet quotas by shipping partial or defective products around quarter-end, even after the SEC settlement.
The report quotes a former salesperson saying “Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance.”
The short-seller’s investigation also raised concerns about Super Micro’s relationships with related parties. The report states that suppliers Ablecom and Compuware, controlled by CEO Charles Liang’s brothers, have been paid $983 million by Super Micro over the past three years. Liang and his wife also own part of Ablecom.
Hindenburg further alleges that Super Micro’s exports of high-tech components to Russia have increased threefold since the invasion of Ukraine, potentially violating U.S. export bans.
The report claims nearly two-thirds of these exports involve “high priority” components that Russia may be diverting for military use.
Super Micro was temporarily delisted from the Nasdaq in 2018 for failing to file financial statements. By August 2020, the SEC charged the company with improperly recognizing over $200 million in revenue and understating expenses.
The new allegations come as Super Micro has seen its fortunes rise amid surging demand for AI-related hardware. The company’s stock soared from $290 in early January to over $1200 by March before retreating. Super Micro was added to the S&P 500 index in March and the Nasdaq-100 in July.
However, the company’s most recent quarterly earnings fell short of Wall Street estimates. While revenue more than doubled to $5.31 billion, margins declined as costs increased. Super Micro recently announced a 10-for-1 stock split effective October 1.
CEO Charles Liang remains optimistic about Super Micro’s prospects, telling analysts on the latest earnings call that the company is “well positioned to become the largest IT infrastructure company.”
He cited Super Micro’s 30-year history and position as a U.S.-based AI platform designer and manufacturer.
Some analysts have grown more cautious on Super Micro stock. Bank of America Securities analyst Ruplu Bhattacharya downgraded shares to neutral from buy and cut his price target to $700 from $1,090, citing margin pressures and a competitive pricing environment.
