Super Micro Computer's Shares Drop 8% Following Hindenburg's Short Selling

Short seller Hindenburg Research, known for its long-standing dispute with Adani Enterprises, has targeted the American company Super Micro Computer. Consequently, the company's shares have dropped by approximately 8%.

Hindenburg Alleges Accounting Manipulation

Hindenburg Research released a report on Tuesday morning alleging that Super Micro Computer, a semiconductor/server company whose stocks have soared in recent years due to the AI bubble, may be involved in accounting manipulation and self-dealing among family members.

Findings of Hindenburg's Investigation

The short seller's three-month investigation included interviews with former senior employees, industry experts, and a review of litigation records, international corporate and customs records. According to Hindenburg, the investigation revealed glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.

Less than three months after paying a $17.5 million SEC settlement, Super Micro Computer began re-hiring top executives that were directly involved in the accounting scandal, according to litigation records and interviews with former employees.

A former salesperson stated that almost all of the employees who were let go due to the malfeasance have been rehired. The company was accused of restarting "improper revenue recognition," "recognizing incomplete sales," and "circumvention of internal accounting controls" just three months after the SEC settlement, according to a lawsuit filed in April 2024.

Even after the SEC settlement, salespeople were allegedly pressured to meet quotas by stuffing the channel with distributors using "partial shipments" or by shipping defective products around quarter-end, according to interviews with former employees and customers.

Super Micro's Relationships with Related Parties

Hindenburg's report also raised questions about Super Micro's relationships with both disclosed and undisclosed related parties, describing them as fertile ground for dubious accounting. The report cited that disclosed related party suppliers Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last 3 years. Furthermore, Ablecom is partly owned by Super Micro CEO Charles Liang and his wife.

The report also highlighted the circular nature of these relationships. Super Micro provides components to the entities which assemble them and sell them back to Super Micro. They also rent warehousing and factory space to Super Micro despite it having its own factory.

After-sales Service Undermining Super Micro's Customer Retention

Multiple former employees and channel partners confirmed that after-sales service is undermining Super Micro’s ability to retain customers. One former salesperson described it as their Achilles heel, stating it was just horrible.

The report concluded by stating that Super Micro is a serial recidivist. It 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.

Bottom Line

These allegations by Hindenburg Research have certainly raised serious concerns about Super Micro Computer's business practices. It remains to be seen how the company will respond to these claims and what actions will be taken to address these issues. What are your thoughts on this matter? Do you think these allegations will significantly impact Super Micro's future? Share your thoughts and discuss this article with your friends. Sign up for the Daily Briefing, available every day at 6pm.