Can Anything Save Super Micro Computer?

Management also noted its Independent Special Committee found the Audit Committee “acted independently,” contrary to EY’s concerns that it was influenced by the CEO. In the press release, the Special Committee said:

[T]here is no evidence of fraud or misconduct on the part of management or the Board of Directors. The Committee is recommending a series of remedial measures for the Company to strengthen its internal governance and oversight functions, and the Committee expects to deliver the full report on the completed work this week or next.

Despite this update, Supermicro still has no timeline for when it will file its 10-K, though it intends to do so according to Nasdaq’s compliance rules.

At this point, Supermicro is two quarters behind on its financial reporting. The stock is down over 50% since the release of the Hindenburg report, and it has fallen 80% from the all-time high it reached in March.

In the meantime, the company needs to hire a new auditor, and management should share a plan to rectify that problem as soon as possible.

Management also needs to complete the filing of its 10-K and give investors a reasonable expectation of when the filing will take place, or at least shed light on the issues preventing it from happening. Management mostly avoided discussing those problems on the most recent earnings call.

Though management insists no material changes will need to be made to its fiscal 2024 results, the allegations from Hindenburg Research, EY’s resignation, the possible DOJ investigation, and Supermicro’s own inability to resolve the matter in more than two months indicate this could be more than a run-of-the-mill procedural error. Despite what management has said, financial restatements are possible and could go back quarters or even years.

Until investors get more transparency from management and see that it’s clearly taking steps to regain compliance, the stock should be avoided. For current shareholders, making the decision to sell is more difficult as the stock has already fallen so far, but the reality is Supermicro’s sell-off may not be over.

It’s easy for the business to spiral from here if it loses trust with its customers. Reports are now emerging that Nvidia, Super Micro Computer’s most important supplier, is redirecting its in-demand chips to other server companies, fearing a crackdown on Supermicro related to any DOJ investigation and potential damage to its own reputation.

It’s time for management to come clean with investors and stop obfuscating. If it doesn’t resolve some of these problems by the end of the month, it faces a real threat of being delisted from the Nasdaq, which would make it even more difficult to restore its reputation with investors.

Super Micro Computer is running out of time, and it needs to act.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Can Anything Save Super Micro Computer? was originally published by The Motley Fool