To The Moon

$SUPER MICRO COMPUTER INC(SMCI)$ 

Is the AI Server Giant SMCI Headed for Delisting? Ernst & Young’s Resignation Raises Red Flags

This article is written by Shernice, if you like my article, please hit the like button. 

Super Micro Computer Inc. (SMCI) is facing a major crisis after its auditor, Ernst & Young (EY), one of the Big Four accounting firms, resigned on October 24, citing “integrity concerns” regarding SMCI’s internal controls. EY, appointed in 2023, had previously warned SMCI’s audit committee in July about internal control issues, leading to this resignation. The impact of EY’s withdrawal has been devastating, with SMCI’s stock, which soared 20 times in two years, experiencing a sharp decline, losing nearly two-thirds of its value since August.

It appears that Super Micro Computer (NASDAQ:SMCI) is facing liquidity challenges. The company recently amended its loan agreement with Cathay Bank, which now provides an extended timeline for delivering its annual results. This amendment allows Super Micro to delay filing its audited financial statements for the fiscal year ending June 30, 2024, from the original deadline of Oct. 28, 2024, to Dec. 31, 2024. Additionally, the company’s deadline to report its quarterly balance sheet and income statement for the period ending Sept. 30, 2024, has also been extended to Dec. 31.

The revised agreement includes a new requirement for Super Micro to maintain a minimum of $150 million in unrestricted cash at all times. Financial concerns were initially raised in late August when Hindenburg Research disclosed a short position in Super Micro's stock, soon followed by the company announcing a delay in its annual 10-K filing. Despite these delays, Super Micro has stated that it does not expect any significant changes to its fiscal 2024 results.

The company now risks delisting from Nasdaq if it cannot file audited financials by mid-November. With few auditors willing to take over, SMCI’s options are dwindling. The delay and auditor concerns reflect poorly on the company’s financial credibility, especially as SMCI is a significant server supplier to tech giants like NVIDIA. If SMCI is delisted, competitors like Dell could seize this opportunity to expand their market share.

Historical cases suggest a grim outlook. In early 2024, SunPower faced a similar situation with fraud allegations, resulting in a stock plunge and eventual Nasdaq delisting. Tingo, a fintech firm, also collapsed after fraud charges surfaced, leading to halted trading and permanent delisting. Both cases serve as cautionary tales for SMCI.

SunPower, once a prominent name in U.S. solar energy, faced mounting issues in 2024. The company’s troubles began in February when its CEO received a subpoena, triggering legal proceedings. By April, layoffs were underway, and in June, Ernst & Young resigned from its roles as both auditor and independent director on SunPower's audit committee. The fallout was rapid: SunPower's stock plunged in July, and by August, it was delisted from Nasdaq. Ultimately, SunPower filed for bankruptcy and began winding down operations, marking the end of an era for the long-respected solar company.

In November 2023, Tingo’s stock plummeted by 80%, prompting the U.S. Securities and Exchange Commission (SEC) to halt its trading. By December, the SEC accused Tingo of extensive fraud, uncovering a massive discrepancy in its financials—a supposed $462 million deposit in a Nigerian bank that, upon investigation, turned out to contain just $50. Hindenburg Research even commented that the fraud was so blatant that even a drowsy, visually impaired junior accountant could have detected the fraud.

SMCI’s troubles aren’t new. In 2017, it failed to meet financial reporting deadlines, resulting in a forced Nasdaq delisting before a 2020 re-listing. Regulatory issues reemerged with accusations of inflated revenue and accounting misrepresentations. Furthermore, a 2018 investigation linked SMCI’s servers to alleged malware implants, sparking concerns about data security in U.S. companies like Apple and Amazon.

The company operates as a family-run business, with key positions filled by the founder’s two brothers, sister-in-law, and other close relatives, creating a tightly knit network of second- and third-degree family connections. Despite being structured as a limited liability company, it functions more like a private family enterprise. This setup has raised eyebrows, especially regarding a $17.5 million loan extended to the sister-in-law, sparking questions about financial practices and transparency within the company.

The resignation of a Big Four auditor underscores a severe credibility crisis, casting doubt on SMCI’s future. Some speculate SMCI’s financial woes are a symptom of challenges in the AI server market, while others maintain that AI demand remains robust. In any case, suppliers closely tied to SMCI have seen share declines, as the market speculates on potential beneficiaries if SMCI loses its foothold. The outcome now hinges on whether SMCI can meet the looming financial reporting deadline, which could be pivotal for its survival.

@Tiger_comments  @Daily_Discussion  @TigerObserver  @TigerPM  @TigerClub @TigerStars