Supermicro continues slide as annual report delayed on day after short report

Shares of Supermicro (SMCI) are again under pressure on Wednesday after the company said it expects not to timely file its Annual Report on Form 10-K for the fiscal year ended June 30, 2024. This comes just a day after Hindenburg Research released a short report on the company alleging “accounting manipulation.” JPMorgan, however, believes there to be limited evidence of accounting mistreatments beyond revisiting the 2020 charges from the SEC, and sees limited new information relative to the “existing and already known” business relationship with related companies owned by the siblings of the founder of Supermicro.

SHORT REPORT: Shares of Super Micro Computer were under pressure on Tuesday after Hindenburg Research published a short report in which it said its investigation found “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.” Hindenburg, which believes “Super Micro is a serial recidivist” that “benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition,” disclosed that it has taken a short position in shares of Super Micro Computer

LARGELY VOID OF DETAILS: JPMorgan kept an Overweight rating on Supermicro after Hindenburg Research released a short report alleging evidence of accounting manipulation, sibling self-dealing, and sanction evasion. The firm believes there to be limited evidence of accounting mistreatments beyond revisiting the 2020 charges from the SEC, and sees limited new information relative to the “existing and already known” business relationship with related companies owned by the siblings of the founder of Supermicro. The allegations relative to sanction evasion are tough to verify, but it is still worth highlighting that the magnitude of revenues referenced in the report does not change the medium-term revenue opportunity for the company in relation to the addressable $275B artificial intelligence sever total addressable market in 2026 and 2027, the firm tells investors in a research note.

JPMorgan sees the short report as “largely void of details around alleged wrong doings from the company that change the medium-term outlook, and largely revisiting the already known areas for improvement in relation to corporate governance and transparency.”

10-K FILING DELAY: Super Micro Computer announced that it expects that it will not timely file its Annual Report on Form 10-K for the fiscal year ended June 30, 2024, and that it expects to file a Notification of Late Filing on Form 12b-25 with respect to the Annual Report on August 30, 2024. “SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense. Additional time is needed for SMCI’s management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024. SMCI has not made updates to its results for the fiscal year and quarter ended June 30, 2024, that were announced in SMCI’s press release dated August 6,” the company stated.

PRICE ACTION: In morning trading, shares of Supermicro have dropped over 22% to $423.98.