New Hindenburg report alleges $35 billion server maker Super Micro Computer of accounting fraud, shares plummet
US-based activist short seller Hindenburg Research LLC has released a new report alleging “accounting manipulation” in server manufacturer Super Micro Computer, and has announced it has taken a short position on the company’s stocks on Tuesday, August 29, 2024.
This new report led to Super Micro Computer’s Nasdaq-listed shares closing 19.02% in the red after the trading session on August 28, 2024.
Who is Hindenburg Research?
Hindenburg Research is an investment research firm that investigates various companies for aspects like financial irregularities, fraud, etc, and publishes a report after taking a short position on that company’s stocks.
What is a short position?
A short position, also known as short-selling of a company’s shares is when an investor enters into a short selling arrangement with a broker wherein the investor borrows shares, sells them for the prevailing market price anticipating a fall in the share price (In this case, as an effect of the negative report), buys the same amount of shares at a lower price after the market price has fallen, and returns it to the person or entity they borrowed it from.
Whatever difference in price is there between the previous market price they borrowed the share at and the fallen price at which they bought the share is the short seller’s profit.
Who is Super Micro Computer?
Super Micro Computer is a major provider of high-performance server and storage solutions, founded in 1993 and headquartered in San Jose, California.
What are the allegations against Super Micro Computer in the new report?
The report which was created after three months of investigation accuses Super Micro of “accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”
Close ties with Nvidia allowed the company to quickly roll out servers with AI chips, which led to its shares nearly doubling this year in market value, even outperforming Nvidia.
However, it was temporarily delisted in 2018 for not filing required financial statements and was charged by the SEC with “widespread accounting violations” of over $200 million in improperly recognized revenue and understated expenses.
Less than three months after settling with the SEC for $17.5 million, the company re-hired executives involved in the scandal, according to the report.
Related party suppliers such as Ablecom and Compuware, part-owned by CEO Charles Liang and controlled by his brothers, received $983 million from Super Micro over the last three years, providing components to Super Micro and then selling them back, leading to concerns about circular transactions.
A new CFO hired in January 2018 helped the company to re-list again, but resigned in January 2021, with a former sales director claiming the CFO was possibly forced out.
The company also exported high-tech components to Russia after the war started, despite many companies handling Super Micro products being under US sanctions.
Super Micro also has a joint venture with Chinese state-run company Fiberhome, involved in human rights abuses.
Additionally, two Taiwanese entities owned by one of Liang’s brothers and operating from the Super Micro Science and Technology Park in Taiwan are suppliers not disclosed in filings. There is also one based in Hong Kong similarly reselling Super Micro products and providing OEM services.
Super Micro also made an undisclosed investment in tech startup Lambda Labs in February 2024, signing an unusual $600 million lease contract for a California data center, sub-leasing space to Lambda.
It also has undisclosed investments and transactions with other companies, including Leadtek and a Turkish shell company, according to the report.