Thursday 11/74/2024
Here is what happens when the external auditor disclaims an opinion, reading this day by day melt down of an AI darling makes the reading
in the audit text come alive
From Today's WSJ Super Micro Comes Up Short
Super Micro Computer SMCI -18.05%decrease; red down pointing triangle says it would be selling a lot more servers—if only it had Nvidia’s NVDA 4.07%increase; green up pointing triangle
latest chips. Unfortunately, investors can no longer afford to take the company at its word.
The specialized server maker that began the year as one of the hottest names in artificial intelligence has now become too cold to touch. In an unaudited “business update” Tuesday afternoon, Super Micro reported preliminary revenue between $5.9 billion to $6 billion for its fiscal first quarter ended September, which was below the company’s prior forecast range of $6 billion to $7 billion. The numbers are preliminary because Super Micro has no auditor after Ernst & Young bailed last week in one of the more colorful exits in memory. The Big Four accounting firm said it was “unwilling to be associated with the financial statements prepared by management” in its resignation letter, according to a filing by Super Micro.
That filing alone took nearly 33% off Super Micro’s stock price, which was already down 59% from its peak in March. The latest update came out on election night, which didn’t stop investors from voting with their feet again. Super Micro’s stock slid more than 21% in early trading Wednesday, putting the share price below its level from a year ago—before AI hype more than quadrupled its value.
2024Nov.-50050100150200250300350%DellHewlett PackardEnterprise Super Microo
Such a plunge suggests Super Micro may be a cheap AI play again. But while its current multiple of less than seven times forward earnings is indeed now at a discount to main rivals such as Dell and Hewlett Packard Enterprise, Super Micro is no bargain. The company has been under a cloud since famed short-selling firm Hindenburg Research issued a report in late August claiming “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export-control failures, and customer issues.”
Super Micro declined to comment on the report at the time, but the next day announced it was delaying its annual 10-K filing, saying it needed time to “complete its assessment of the design and operating effectiveness of its internal controls over financial reporting.” That 10-K still hasn’t been filed, and the recent loss of its auditor suggests it likely isn’t coming soon. Super Micro said Tuesday it is working “diligently” on the matter, but the company that was just added to the S&P 500 in March now stands in danger of being delisted from the Nasdaq.
And what of Super Micro’s actual business? Demand for AI components remains hot. The biggest tech companies made clear last week that they are still spending a boatload—and planning to spend boatloads more—on that very technology.
But while even $5.9 billion in revenue for the September quarter is more than double what Super Micro managed in the same period last year, it would also be the first time the company has missed the low end of its guidance range in at least five years, according to FactSet data.
Professor Elam 
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