SMCI Crash on Weak Q3 & Serious Audit Issues.
The Follow Up.
On Tue, 05 Nov 2024 I have shared all the events leading to $SUPER MICRO COMPUTER INC(SMCI)$ -57.77% fall since 06 Aug 2024.
As more details are revealed to the press, the picture gets clearer.
It is easy to see why Ernst & Young (EY), one of big 4 global auditors, made the executive decision to walk away from this spaghetti-run company or companies.
If not, in the event that SEC finds serious misconduct, in SMCI’s audited financial statement, the penalty facing EY could be :
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Cease-and-desist Order.
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Monetary penalties - fines.
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Bar from practice.
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Revocation of audit license.
The 27 Aug 2024 Hindenburg report (whether true or false) has already “alarmed” the Securities and Exchange Commission (SEC).
All In The Family.
Until recently, the family ties that bind Super Micro’s CEO Charles Liang to some of its biggest suppliers had been of little apparent concern to investors and analysts.
(1) Sara Liu:
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Is the wife of SMCI’s CEO Charles Liang.
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She is a member of SMCI board of directors since March 2007.
(2) Ablecom - Taiwan-based electronics firm is a major supplier of server enclosures to SMCI.
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SMCI CEO Charles Liang’s brother - Steve Liang is the CEO of Ablecom.
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Steve Liang owns part of Ablecom.
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Bill Liang sits on the Board of Ablecom.
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SMCI CEO Charles Liang is a shareholder of Ablecom.
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Sara Liu is a shareholder of Ablecom.
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Ablecom supply nearly all of the server enclosures to SMCI during the 12 months ended 30 Jun 2023.
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SMCI makes up a majority of net sales for Ablecom, a “substantial” majority.
(3) Super Micro Asia Science and Technology Park:
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Is a Taipei-area business campus.
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SMCI and Ablecom are venture partners that manages this park.
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Both companies have offices’ presence on campus.
(4) Compuware - Taiwan-based electronics firm is a major supplier to SMCI. It manufactures motherboards, backplates and other components used on printed circuit boards, for SMCI.
To complicate matters, (a) Compuware buy parts from SMCI to manufacture those components and then (b) sell the products “back” to SMCI.
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SMCI CEO Charles Liang’s brother - Bill Liang is the CEO of Compuware.
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Bill Liang owns part of Compuware.
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Steve Liang sits on the Board of Compuware.
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SMCI makes up a majority of net sales for Compuware.
Even if SMCI has disclosed those relationships in its financial filings, it did not raise any concerns. SMCI rose by >300% during Q1 2024, peaking at around $119 a share.
The euphoria has been fueled by surging demand from data-center operators.
Strangely enough, in SMCI most recently filed annual report for period ended 31 Mar 2024, it cited “Conflicts of interest may arise with Ablecom and Compuware, and they may adversely affect SMCI operations”.
Hindenburg on “Leadtek”.
One “juicy” fact not covered in SMCI’s filing was highlighted in the Hindenburg report.
Whether it is true or otherwise, it’s yet to be verified.
The report noted that Leadtek, a Taiwanese tech company, is selling servers that look exactly like and have almost the same technical specifications as the ones sold by SMCI.
Digging into Leadtek’s financial filings:
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Ablecom and Compuware are Leadtek’s largest individual investors.
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SMCI Charles Liang’s brother- Steve Liang is Leadtek director as of late 2023.
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SMCI Charles Liang’s brother- Bill Liang is Leadtek director as of late 2023.
My thots: Are there any other secrets from the Liang family that is still undiscovered ?
Business Update on Q1 2025 Earnings.
For quarter ending 30 Sep 2024:
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Revenue : Was between $5.9 billion & $6 billion vs $6.45 billion expected and is still up +181% YoY.
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Earnings per share (EPS): Was $0.75 to $0.76, in line with analyst expectations compiled by LSEG.
Q2 2025 earnings Outlook:
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Revenue: Forecast to be between $5.5 billion and $6.1 billion vs $6.86 billion expected, according to LSEG.
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Earnings per share (EPS) : To be between $0.56 and $0.65 vs $0.83 expected.
Tuesday, 05 Nov 2024.
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Riding on the euphoria in the US market, SMCI managed to close higher by +6.42% at $27.70.
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The stock is still above its 200-day, 50-day and 20-day moving averages.
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With business updates on its weaker-than-expected (a) fiscal first quarter, which ended 30 Sep 2024, and (b) the current quarter, SMCI fell by -15.88% to $23.30 post market closing.
With US DOJ still investigating SMCI, its fate is still unknown. SMCI’s troubles are due to its shady business practices. If it can't find a certified auditor to approve its messy finances, it could be delisted. Best to avoid SMCI until the coast is clear.
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Do you think SMCI will fall further today ? I think so !
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Do you think SMCI will be able to find an auditor, willing to work thru its mess ?
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Friday closing it was $24.52...still falling....
If it fails to submit it's financial by 16 Nov, that's when the real drama will unfold... Repost to share, Like as encouragement ok....
It will be difficult to convince the other Big 3 Accounting firm to take a chance on SMCI especially its Management team that have resulted in all these underlying mal-accounting practices happening to a "great" company.
For others reading this post, please share by Reposting, Like as encouragement ok. Thanks.
Pls "Re-post" so that more get to know. Tks! Rating is important (to me).
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