Super Micro Computer Inc. (SMCI) is navigating through a mounting crisis after allegations of financial misconduct by Hindenburg Research, leading to a sharp decline in stock value and the resignation of its auditor, Ernst & Young.

Chronology of Events:

  • Hindenburg Report: On August 27, Hindenburg Research released a damning report accusing Super Micro of accounting manipulation and undisclosed related-party transactions, which also highlighted potential export control violations.
  • Financial Report Delay: The next day, Super Micro announced a delay in filing its annual report to reevaluate its internal controls, exacerbating investor worries about the company’s transparency.
  • Stock Impact: Shares plummeted nearly 20% on the day of the announcement and continued to decline, cumulating in a 33% drop by October 30 following the auditor’s resignation.

Management’s Response:

  • CEO’s Statement: Charles Liang, CEO of Super Micro, refuted Hindenburg’s claims, labelling the report as containing “false or inaccurate statements.”
  • Internal Review: The company’s board formed a special committee that concluded a three-month review with findings of “no evidence of fraud or misconduct.” Super Micro is currently in the process of hiring a new auditor.

Financial Performance and Outlook:

  • Recent Earnings: For Q3 ending September 30, Super Micro reported adjusted EPS slightly above expectations but revenue fell short of forecasts, despite a year-over-year increase.
  • Future Projections: The company’s forecast for the December quarter is below analyst expectations, with adjusted EPS and revenue anticipated to be lower than previous estimates.

Market Dynamics and Competitor Impact:

  • Sector Shift: The ongoing crisis at Super Micro may benefit competitors like Dell Technologies (DELL) and HP Enterprise (HPE), as outlined by Citi analyst Asiya Merchant. Both companies are positioned to capture market share in the AI server space, which has been a strong segment for Super Micro.
  • Dell’s Advantage: Dell, in particular, has seen a substantial increase in AI server sales and may continue to benefit from Super Micro’s challenges.

Super Micro Computer Inc. is at a critical juncture as it deals with the fallout from serious allegations and the loss of its auditor. The company’s efforts to stabilize and regain investor confidence will be crucial in the coming months, as it faces both operational challenges and competitive pressures in the tech industry.