TLDR:
- Ernst & Young (EY) resigns as Super Micro Computer’s auditor, causing stock to plunge 32%
- EY cites inability to rely on management’s representations and financial statements
- Company faces ongoing DOJ investigation into accounting practices
- Hindenburg Research previously alleged accounting manipulation in August
- Super Micro disagrees with EY’s decision and is seeking new auditors
Super Micro Computer (SMCI) experienced a 32% stock decline on Wednesday after Ernst & Young (EY), its accounting firm, announced its immediate resignation. The move comes amid an ongoing Department of Justice investigation and previous allegations of accounting irregularities.
The tech company, which specializes in AI server hardware, saw its shares tumble after EY’s resignation was revealed in an SEC filing. The accounting firm stated it could “no longer rely on management’s and the Audit Committee’s representations” and was “unwilling to be associated with the financial statements prepared by management.”
EY’s departure occurred during its audit of Super Micro’s fiscal year ending June 30, 2024. The timing is particularly noteworthy as the company has yet to file its annual report for 2024, following a delay in August that caused a 20% stock drop at the time.
Super Micro has publicly disagreed with EY’s decision and stated it is actively searching for new auditors. The company maintains that the issues raised by EY will not require any restatements of its quarterly financial results for the fiscal year ended June 30, 2024, or previous fiscal years.
The current situation follows a controversial short-seller report from Hindenburg Research in August, which alleged “accounting manipulation” and “undisclosed related party transactions” at the company. Hindenburg’s three-month investigation claimed to have uncovered various accounting red flags and potential sanctions violations.
The Department of Justice has launched an investigation into Super Micro Computer, as reported by the Wall Street Journal in September. The probe, described as being in its “early stage,” includes inquiries about a former employee accused of accounting violations.
Super Micro has announced plans to provide a first-quarter business update on November 5, coinciding with the US Election Day. This update will be closely watched by investors seeking clarity on the company’s financial position.
The stock’s decline marks a stark reversal for Super Micro, which had previously been riding high on investor enthusiasm for its AI data center prospects. The company’s market value has decreased substantially from its peak valuation of $67 billion in March.
A special committee of the board has been formed to review the matters under consideration, though this has not prevented the sharp decline in investor confidence reflected in today’s stock movement.
The accounting firm’s resignation represents the latest challenge for Super Micro, which must now manage multiple concurrent issues: finding a new auditor, addressing the DOJ investigation, and maintaining investor confidence.
Management faces pressure to provide transparent communication about these developments, as stakeholders await more detailed information about the nature of EY’s concerns.
The company’s AI server business continues to operate amid these financial reporting challenges, though investor focus remains primarily on the governance and accounting issues.
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