Shares of Super Micro Computer Inc. (SMCI), a prominent player in the AI server market, plummeted by over 9% on Wednesday after its auditor Ernst & Young (EY) abruptly resigned, citing concerns over the company's financial reporting and governance practices.
In a letter to Super Micro's audit committee dated October 24th, EY stated that it was resigning due to "information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management."
This development has raised serious questions about the integrity of Super Micro's financial reporting and accounting practices, as well as concerns over transparency and governance within the company. EY had previously expressed concerns about these issues as early as July 2024, prompting Super Micro to appoint a special committee to review its internal controls and engage external advisors.
The auditor's resignation comes just over a month after prominent short-seller Hindenburg Research alleged "accounting manipulation" at Super Micro, further exacerbating doubts about the company's financial practices. Super Micro has also faced regulatory scrutiny in the past, having paid a $17.5 million penalty to the SEC in 2020 over allegations of improperly recording revenue.
With no external auditor to certify its financial statements, Super Micro now faces a significant challenge in regaining investor confidence and credibility in the highly competitive AI server market. The company's management will likely need to take decisive action to address the concerns raised by EY and demonstrate a commitment to transparency and robust financial reporting practices.
