SuperMicro may be in trouble - their auditor resigned

[computerace]

 

Summary

Supermicro's Auditor, Ernst and Young, has resigned, prompting the companies shares to drop 33% and puts them in an even worse position

 

Quotes

Quote

Ernst & Young in its resignation letter said it was “unwilling to be associated with the financial statements prepared by management.”
...

The auditor first flagged issues with Super Micro’s internal financial controls, governance and forthcomingness in late July, prompting the server firm to appoint a special board committee to investigate the company’s internal controls.
 

“We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations,” EY said in its resignation letter.

 

My thoughts

Supermicro is a major vendor of server components that i've seen a lot on LTT, so it seems like this could be interesting to an LTT, or even broader tech audience because of the impact it may have on parts availability in the future if they go under. It also seems concerning that another large company in the tech sphere seems to be showing signs of potentially company-ending issues after the EKWB meltdown reported on by GN a while ago

 

Sources - Supermicro

https://www.cnbc.com/2024/10/30/super-micro-auditor-resigns-after-raising-concerns-months-earlier.html

https://www.cnbc.com/2024/09/26/super-micro-shares-tumble-12percent-after-doj-reportedly-opens-probe-into-company.html
Sources - EKWB story from a while back that i referred to

 

[Kisai]

Uh oh, that's not good. That's all we need is one less competitor in the space dominated by Dell and HP.

[monopoly_hater]

Oh no, another one? I thought these guys were decent, but seems like you can't become a big company without skeletons in your closet.

[Monkey Dust]

Auditor don't drop a client because they are going bust. They drop clients, because they don't want to sign off the client's financial statements as being free of misstatement.

 

Another auditor is highly unlikely to step in to certify their accounts, as that would be incredibly damaging to their reputation. Though it does not mean a company is doomed, but most of the executive team will job hunting soon.

 

SuperMicro is a huge company, it's very unlikely to be the end for them.

[Salted Spinach]

According to the latest version of Capitalism for Dummies released 50 years ago, this is the standard process

 

1. Mess up

2. Denial

3. Revelation

4. Weight loss

5. Assimilation

 

Supermicro seems to be at stage 2

[starsmine]

12 hours ago, Monkey Dust said:

Auditor don't drop a client because they are going bust. They drop clients, because they don't want to sign off the client's financial statements as being free of misstatement.

 

Another auditor is highly unlikely to step in to certify their accounts, as that would be incredibly damaging to their reputation. Though it does not mean a company is doomed, but most of the executive team will job hunting soon.

 

SuperMicro is a huge company, it's very unlikely to be the end for them.

Enron wasnt going bust either. 

The problem if an auditor drops you, is exactly like you said, a misstatement so gross that they could not cover it up. 

[thechinchinsong]

2 hours ago, starsmine said:

Enron wasnt going bust either. 

The problem if an auditor drops you, is exactly like you said, a misstatement so gross that they could not cover it up. 

Yeah, SuperMicro doesn't need to be going bust NOW, but the fact that an auditor would choose to not take SuperMicro's money in order to not sign their financials really says something. And this is from the accounting firm that was fined 100 million in 2022 for their auditors cheating to pass an ethics exam. SuperMicro themselves were already found guilty of shady accounting back in 2020.

https://www.sec.gov/newsroom/press-releases/2022-114
https://www.sec.gov/newsroom/press-releases/2020-190

Ernst & Young don't want to be the next Arthur Andersen.

[thechinchinsong]

Maybe if there was another accounting firm that would take up Supermicro's case I would be less suspicious, but it looking bleak for them. I have no love for Hindenburgresearch, but this article doesn't paint a good picture for Supermicro:
https://hindenburgresearch.com/smci/

[StDragon]

19 hours ago, Kisai said:

Uh oh, that's not good. That's all we need is one less competitor in the space dominated by Dell and HP.

I was never a fan of Supermicro's IPMI OOB management. They won't be missed other than by cloud vendors that want cheap host servers.

[TetraSky]

I'm guessing they wanted them to make up lies about their financials in an effort to boost the stock for CEO bonus ?

[starsmine]

7 hours ago, thechinchinsong said:

Maybe if there was another accounting firm that would take up Supermicro's case I would be less suspicious, but it looking bleak for them. I have no love for Hindenburgresearch, but this article doesn't paint a good picture for Supermicro:
https://hindenburgresearch.com/smci/

.... Selling to russia post ukraine invasion?
god damnit

Super micro has been the best performing stock in my mutual funds for the last two years >.>

[thechinchinsong]

9 hours ago, starsmine said:

.... Selling to russia post ukraine invasion?
god damnit

Super micro has been the best performing stock in my mutual funds for the last two years >.>

I'll be honest, I was looking to get into SMCI stock before the most recent round of allegations, but after reading through this report and some other articles, I'm thoroughly convinced that SMCI isn't gonna have a good time. They seem to be doing pretty shady things in a whole bunch of areas.

[starsmine]

17 minutes ago, thechinchinsong said:

I'll be honest, I was looking to get into SMCI stock before the most recent round of allegations, but after reading through this report and some other articles, I'm thoroughly convinced that SMCI isn't gonna have a good time. They seem to be doing pretty shady things in a whole bunch of areas.

I never explicitly went out and bought it, just a number of my funds buy it. 
LMAO I have gamestop????

For the last two years this fund has had SMCI as the largest % of net asset, purely because of how much it grew vs everything else in this fund. 

[thechinchinsong]

3 hours ago, starsmine said:

I never explicitly went out and bought it, just a number of my funds buy it. 
LMAO I have gamestop????

For the last two years this fund has had SMCI as the largest % of net asset, purely because of how much it grew vs everything else in this fund.

I mean that's just the nature of index funds so I I'm not really surprised they own some of any one stock. Hopefully SCMI doesn't drag down index funds down too much if it gets delisted or goes under.

[bcredeur97]

I actually liked supermicro before the AI craze. They built low cost alternative servers, and they had A LOT of options. And they had a lot of non-proprietary options. You could even put newer gen boards and stuff in some of their old servers as upgrades... and they pretty much would just drop in.

sure the build quality wasn't as nice as Dell, but they were more "get the job done it doesn't have to look fancy". Plus I love that their servers always came fully populated with drive cages... and ready for you to put your own drives, UNLIKE some ppl

Also just in general a lot of great ideas for form factors and such too. Their Dual and quad node systems are awesome. 

I will be really sad if they go away.

[NumLock21]

On 11/12/2024 at 12:48 AM, Kisai said:

Uh oh, that's not good. That's all we need is one less competitor in the space dominated by Dell and HP.

SuperMicro isn't the only one in the server space. There is also Tyan, but now their site seems to reroute to their parent company MiTAC.

 

[williamcll]

You did think they would be doing well selling AI servers this year.

[starsmine]

2 hours ago, williamcll said:

You did think they would be doing well selling AI servers this year.

They are/were
Doing well doesn't stop you from playing financial games that are not generally accepted and approach fraud. 

[Quinnbea9]

Can't decide whether to cackle at the hypocrisy of EY- who got a $100mil fine for enabling decades long cheating systems for the CPA Ethics exam- or get extra worried, for the same reason.