- Improper revenue recognition among list of accusations
- Investors largely shrug off report after temporary sell off
- Super Micro Computer stock has rallied more than 90% this year
Short seller Hindenburg Research has launched an attack on popular server computer maker Super Micro Computer (SMCI:NASDAQ), yet investors have largely shrugged off the report.
Having initially slumped by around 8% in response to the report, published across the internet on 27 August, the shares had rebounded by the end of the trading session. The stock is down around 3% at $547.64, still 11% up on August lows.
Hindenburg claims that there are several issues around the company’s accounting practices and corporate governance which could raise red flags among investors. Allegations include improper revenue recognition and rehiring executives involved in past accounting scandals.
‘Less than three months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives that were directly involved in the accounting scandal, per litigation records and interviews with former employees’, the report stated.
Further issues pointed out by Hindenburg involve Super Micro’s relationships with related parties. Super Micro CEO Charles Liang’s brothers reportedly control suppliers Ablecom and Compuware, which have been paid $983 million over three years. These relationships, described as circular, involve transactions that are not fully disclosed and pose risks to revenue recognition and reported margins, according to Hindenburg.
SUPER POPULAR SUPER MICRO
Super Micro has become one of AI’s (artificial intelligence) pin-up stocks, surging more than 90% this year thanks to its innovative, energy-efficient, liquid super-cooled servers and storage solutions. The San Jose, California, company’s clever kit includes high-density servers and specialised hardware accelerators, as explained in Shares’ recent in-depth feature below.
Super Micro’s stock hit a record $1,188.07 in March, giving the business a peak valuation of nearly $70 billion. The overnight closing market cap was $32 billion.
Hindenburg, founded and run by Nathan Anderson, makes its money by shorting stocks (betting the price will fall) it has researched. It then releases its ‘findings’ in often damning reports in the hope that investors will panic and the stock plunges, allowing Hindenburg to exit the short position at a huge profit.
Activist short sellers such as Hindenburg, Daniel Yu’s Gotham City Research and Carson Block’s Muddy Waters Capital were inspired by Harry Markopolos, a financial fraud investigator who was instrumental in uncovering the Bernie Madoff’s investment scandal in 2008.
