We’ve been covering SuperMicro’s deteriorating place among financial sharps. I think our history of article titles tells the story:
- January 2023: “SuperMicro is a Shaky House of Cards?” (LET)
- May 2024: “SuperMicro: Is This a Bad Sign for the Server King or Was SprucePoint Just Completely Ridiculous?“
- August 2024: “Is SuperMicro in Trouble?“
The short version is that SuperMicro had torrid growth as companies like Facebook built out datacenters and expanded services. But of course that can’t last forever. Eventually, SuperMicro is going to pull back. If they manage it well, they’ll report lower revenue with proportionally lower expenses (same margin) as they effectively manage current demand and wait for the next boom cycle.
Of course, if they manage it poorly, revenue will drop while expenses will stay high, they’ll be stuck with inventory piling up in warehouses, margin will shrink as they try to discount it out the door, they’ll take on debt, etc.
Famed short seller SprucePoint concluded the latter was their path and issued a blistering report back in May. And the picture they painted was grim:
CEO wants that sweet tech multiple but needs to demonstrate hypergrowth to keep it. So he courts larger customers (and takes on concentration risk), fuzzes some of the accounting items that are open to interpretation, and tries to hide any sales stalls with bloated inventory or one-time write-offs. Worth noting that in 2020, SMCI was charged with “widespread accounting violations” (as the SEC put it).
And Now Hindenburg Piles On
Now Hindenburg Research smells blood in the water. Their new report, released today, pulls no punches: “Super Micro: Fresh Evidence Of Accounting Manipulation, Sibling Self-Dealing And Sanctions Evasion At This AI High Flyer”.
Some highlights:
- “Our 3-month investigation..found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”
- “Less than 3 months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives that were directly involved in the accounting scandal, per litigation records and interviews with former employees. A former salesperson told us: ‘Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance.'”
- “Even after the SEC settlement, pressure to meet quotas pushed salespeople to stuff the channel with distributors using “partial shipments” or by shipping defective products around quarter-end, per our interviews with former employees and customers.”
- “Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last 3 years. Ablecom is also partly owned by Super Micro CEO Charles Liang and his wife.”
There’s a lot more.
If you’re not an accounting/business person, these reports are still interesting to read, even if you skip over all the forensic numbers.
Are you still deploying SMC? What do you think of their future?
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I also enjoy using LEBs! I have an empire of little guys for VPNs, larger guys for apps, and big guys for databases and storage. When I'm not in front a screen I'm into German Shepherd dogs, quality knives, target shooting, theology, tabletop roleplaying games, and forest hiking.
I enjoy writing technical articles here on LowEndBox to help people get more out of their systems. You can find me on LowEndTalk @raindog308
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