Hindenburg targets Nasdaq-listed Super Micro over 'accounting manipulation'

Hindenburg Research alleges accounting manipulation, self-dealing and sanctions evasion by AI play and Nasdaq-listed Super Micro Computer

Hindenburg Research has come out with a new report - this time targeting Silicon Valley-based Super Micro Computer Inc - over alleged accounting manipulation and sanctions evasion, sending shares of the Nasdaq-listed company down by nearly 8 percent on August 27, though it trimmed much of the loss to close down 2.6 percent.

The report is based on a three-month investigation by Hindenburg, which it says has revealed 'accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues'.

A spokesperson for Super Micro said the company “does not comment on rumours and speculation.”

Accounting Violations?

The company was temporarily delisted from Nasdaq for failing to file financial statements in 2018, and later charged by the SEC for “widespread accounting violations,” the Hindenburg note said, which were relating to "$200+ million in improperly recognized revenue and understated expenses", resulting in inflated sales, earnings and profit margins.

The Hindenburg Research note also cites litigation records and interviews with ex-employees to suggest that the company re-hired executives 'directly involved in the accounting scandal', just three months after a $17.5 million SEC settlement.

A former CFO of Super Micro - Howard Hideshima - was charged by the SEC with accounting violations after having left the company was hired again by a key related party owned by Super Micro CEO’s brother, said the note.

Related Party Transactions

Two related party suppliers controlled by Super Micro CEO Charles Liang’s brothers have been paid $983 million in the last three years, with one of them also partly owned by Super Micro CEO Charles Liang and his wife, said Hindenburg. Super Micro provides components to these entities which assemble and sell them back to Super Micro, and also rent warehousing and factory space to Super Micro - even though it has its own factory.

Evading US Sanctions?

The Hindenburg note also said that in 2006, Super Micro had pleaded guilty to a felony count of exporting banned components to Iran, which the CEO said was because the company was in its infancy and has since learned from its mistakes.

The note also mentions about 45,000 transactions and alleges that Super Micro has exported high-tech components to Russia, which have risen roughly 3x since Ukraine war, 'apparently violating U.S. export bans', according to our review of more than 45,000 import/export transactions.

Nvidia is a key partner and chip supplier to Super Micro, according to Hindenburg, and Tesla too had been sourcing its servers exclusively from Super Micro in 2023. However, accounting issues and quality concerns have resulted in major companies dropping Super Micro entirely or reducing their share of business with them, said the note.

Short Position by Hindenburg

Hindenburg has caveated this note with a disclosure that they have taken a short position in shares of Super Micro Computer. "This report represents our opinion, and we encourage every reader to do their own due diligence," it said.

Wild Swings in Share Price

Earlier in August, Super Micro Computer reported revenue and profit below analysts’ estimates, but its annual sales outlook was above Wall Street projections. Super Micro also announced a 10-for-1 stock split which are to start trading from October 1. The shares of Nasdaq-listed, $35 billion IT infrastructure have more than doubled this year on strong demand for servers. Still, the shares are down about 48% from its peak in March. Super Micro's share had more than quadrupled in market value during early 2024, before collapsing almost 60% as investors began to question the pace of upmove.

Hindenburg Research recently targeted Axos Financial for its exposure to risky real estate loans. In addition, Hindenburg's previous investigative report on Icahn Enterprises led to Carl Icahn and his firm agreeing to pay a $2 million settlement in connection with a probe by the U.S. Securities and Exchange Commission (SEC).