It’s possible that Super Micro wasn’t the only player involved in smuggling, which could explain why its illegal sales didn’t generate the high margins one might expect.
$SUPER MICRO COMPUTER INC(SMCI)$
$Dell Technologies Inc.(DELL)$
$Hewlett Packard Enterprise(HPE)$
According to renowned Apple supply chain analyst Ming-Chi Kuo:
“Smuggling AI servers into China did not reverse the downward trend in Super Micro’s gross margins.
In 2Q CY2025, at least around one-tenth of Super Micro’s revenue was derived from smuggling activities. In theory, such business should carry higher margins, yet gross margin declined significantly to 9.6% (down from 11.3% in 2Q CY2024).
There are three possible explanations:
The gross margin of its legitimate business is already too low. This aligns with my earlier view that margins in AI server assembly are under pressure. Structural disadvantages—such as smaller scale and weaker execution—further exacerbate this issue for Super Micro.
Super Micro may not have been the only participant in smuggling at the time. With alternative suppliers available, buyers had stronger bargaining power, preventing illegal sales from achieving the expected high margins.
A portion of the excess margin may have been diverted through intermediaries or shell entities, benefiting individuals rather than the company. After all, few would take on legal risks of this magnitude purely to generate returns for shareholders.
This could point to a much broader network—like a long chain of interconnected players. Hopefully, the U.S. Department of Justice continues its investigation.
The Fire Is Spreading: AI Smuggling Probe May Hit More Firms—Including Subcons
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