Key NVIDIA server partner Super Micro, who has seen considerable attention from Wall Street in the current wave surrounding artificial intelligence computing, was at the center of a short seller report by Hindenburg Research earlier today.
The report, released just as markets opened, alleged that the firm has been unable to rectify its financial practices after an SEC fine in 2018, and it operates through a network of shady related entities whose management has close ties with Super Micro's executives and its CEO. The allegations, which are only allegations as of now, did not see a response from Super Micro at the time of publishing.
Super Micro Accused Of Improper Revenue Recognition, $1 Billion Of Related Party Transactions
Hindenburg's report makes a slew of allegations against Super Micro, which range from improper revenue recognition to related parties managed by family members of Super Micro's CEO, links to Chinese paramilitary units, and bleeding market share to rivals. It starts out by sharing that after it was fined by the SEC in 2018, Super Micro fired key executives and attempted a turnaround to improve its revenue recognition. However, Hindenburg alleges, by quoting former employees, that Super Micro has 'receded' to its old practices by not only having brought the fired employees back into its fold but also by improperly recognizing revenue.
Some of the allegations made against the firm accuse it of shipping defective or partially completed products close to the financial period end in order to beef up revenues. Later on, the firm is alleged to have made excuses for not completing its deliveries.
The report also mentions two firms, Ablecom and Compuware, controlled by Super Micro CEO Charles Liang's brothers. More than 99% of these companies' exports to the US were to Super Micro, says Hindenburg, and it adds that these disclosed related party suppliers had been paid $983 million over the past three years.
As for the undisclosed related parties, Hindenburg shares that the undisclosed parties are two Taiwanese companies that operate out of the Super Micro Technology Park on the island. They are run by Super Micro's CEO's youngest brother, and the firms are the sever company's suppliers.
Building on its sharp allegations, the short seller also alleges that exports "of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import/export transactions." It also points out "of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import/export transactions."
Hindenburg adds that Super Micro's market share is eroding as it faces tough competition from other infrastructure firms and particularly Dell. As per former employees quoted in the report, poor after sales service is the key reason Super Micro has been unable to retain customers.
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