Shares Drop Over 30% After Ernst & Young’s Departure
In midday trading on Wednesday, Super Micro Computer (SMCI) saw its stock plummet over 30% following the resignation of its auditor, Ernst & Young. This development raises significant concerns about the company’s governance and financial stability, echoing the sentiment expressed in a short report by Hindenburg Research in late August. Over the past three months, Super Micro shares have lost more than 60% of their value.
Competitors Dell and HP Capitalize on Super Micro’s Troubles
As Super Micro struggles to recover from its current challenges, rivals Dell Technologies (DELL) and Hewlett Packard Enterprise (HPE) are seeing gains in the market. Dell’s stock jumped 8%, while HP rose 3% by noon on Wednesday. Both companies are well-positioned to capture market share in the artificial intelligence (AI) server market, an area where Super Micro has traditionally been a strong player.
Nvidia Experiences Modest Dip, Despite Partnership with Super Micro
Notably, Nvidia’s stock price only experienced a modest 1% dip despite being a partner of Super Micro. This limited impact on Nvidia’s stock suggests that the situation is not having an immediate, widespread effect on other companies in the industry.
Analysts Suspend Coverage and Warn of Governance Issues
Investment firm Needham has suspended its Buy rating on Super Micro shares due to concerns over the company’s management and corporate governance. In a statement, analysts noted:
"Not only does Ernst and Young’s resignation raise considerable questions about the validity of Supermicro’s current and past financial statements, but it also raises significant questions about Supermicro’s corporate governance and management’s commitment to integrity and ethical values."
Needham analysts also see a heightened risk of Super Micro defaulting on its Term Loan Agreement with Bank of America.
Delayed Filing of Fiscal 2024 Statements
Wells Fargo analysts believe that the resignation will likely prevent Super Micro from filing its fiscal 2024 statements on time, as it moves to hire a new public accounting firm. This delay could have significant implications for the company’s ability to meet NASDAQ listing requirements.
Possible Delisting from NASDAQ
Super Micro faces an additional risk of non-compliance with NASDAQ listing requirements. The company received a listing non-compliance notice on September 17, giving it until November 16 to present a compliance plan or face potential delisting—its second such issue in five years. Mizuho analysts caution that EY’s departure only heightens the risk of not filing the necessary 10-K statement in time, which could lead to a delisting scenario.
Limited Business Update Planned for Next Week
Super Micro announced that it will release a business update for the first quarter of fiscal 2025 on Tuesday, November 5, at 5 p.m. ET. However, this update will not be a full financial report, providing limited insight into the company’s current financial situation.
Looking Ahead: Uncertain Path for Super Micro
Super Micro’s future remains uncertain as it addresses its financial reporting and governance issues. With AI and data center demands on the rise, companies like Dell and HP are well-positioned to capture market share from Super Micro’s ongoing challenges. The path forward for Super Micro depends on securing a new auditor, meeting NASDAQ compliance, and restoring investor confidence. However, if delisted, Super Micro risks a more substantial impact on its market position and financial stability.
Key Players in the AI Server Market
- Dell Technologies (DELL): A strong player in the AI server market, with a significant presence in data centers worldwide.
- Hewlett Packard Enterprise (HPE): Another major player in the AI server market, with a focus on providing innovative solutions for data-intensive applications.
- Nvidia (NVDA): While not primarily an AI server vendor, Nvidia’s GPUs are widely used in AI and deep learning applications.
