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Hindenburg Research has released a new report accusing Silicon Valley-based Super Micro Computer Inc. of accounting manipulation, sending the Nasdaq-listed company’s shares down nearly 8% in pre-market trading on August 27. The report is based on a three-month investigation that uncovered what Hindenburg describes as “accounting red flags, undisclosed related party transactions, sanctions and export control failures, and customer issues.”
Alleged Accounting Violations
According to the report, Super Micro was temporarily delisted from Nasdaq in 2018 for failing to file financial statements and was later charged by the SEC for “widespread accounting violations.” Hindenburg claims these violations involved improperly recognizing over $200 million in revenue and understating expenses, inflating the company’s sales, earnings, and profit margins. The report also notes that Super Micro re-hired executives involved in the accounting scandal just three months after settling with the SEC for $17.5 million.
Related Party Transactions
Hindenburg’s report highlights nearly $1 billion in payments over the last three years to two related party suppliers controlled by Super Micro CEO Charles Liang’s brothers. One of these suppliers is also partially owned by Liang and his wife. The report alleges that these related parties supply components to Super Micro, which then assembles and sells them back to the company. Additionally, these entities rent warehousing and factory space to Super Micro, despite the company having its own facilities.
The report also revisits a 2006 incident in which Super Micro pleaded guilty to exporting banned components to Iran, an event the CEO attributed to the company’s early days. Hindenburg further alleges that Super Micro has exported high-tech components to Russia in apparent violation of U.S. export bans. The report claims these exports have tripled since the start of the Ukraine war, based on an analysis of over 45,000 import/export transactions.
Hindenburg’s report points out that Nvidia, a key partner and chip supplier to Super Micro, and Tesla, which sourced servers from Super Micro in 2023, have either reduced or entirely dropped their business with the company due to accounting issues and quality concerns.
Hindenburg has disclosed that it holds a short position in Super Micro’s shares, urging readers to conduct their own due diligence. The company’s stock, which had more than doubled in value earlier this year, has seen wild swings. After reaching a peak in March, the stock has dropped about 48%, reflecting growing investor skepticism.
Market Reaction
Earlier in August, Super Micro reported revenue and profit below analysts’ estimates, though its annual sales outlook exceeded Wall Street projections. The company also announced a 10-for-1 stock split set to begin trading on October 1. Despite strong demand for its servers, Super Micro’s shares have been highly volatile, with the latest Hindenburg report adding to the uncertainty surrounding the company.