I agree, that’s very interesting. Accounting violations typically mean securities fraud, which typically involves the SEC – so this is odd.
My instinct here is to hang on to get more info – but the DOJ involvement makes me think twice about that.
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First off, I will try and clear up the apparent confusion about which government entity is investigating what, as best I can and within the limits of my experience and knowledge, which, quite honestly is not extensive.
At this juncture, it is unlikely that the DoJ has taken an interest in inappropriate accounting practices by SMCI, if any. Unless there’s some evidence of massive fraud that has damaged the general public, this is just not their province. I can say with some degree of confidence that the DoJ is investigating apparent violations of export controlled technology. I can also say with some degree of confidence that an investigation would not be undertaken just because a former employee with a whistle walked into a field office. They would need at least some circumstantial evidence that a violation has occurred prior to investing any resources in a follow-up. There’s absolutely no way of knowing how long this might take. I doubt that the DoJ even knows how long it might take. A preliminary study might be sufficient to suggest further investigation is required, but it’s equally likely that they may determine that no further effort is warranted.
When I worked at Boeing there was one instance of an export controls violation with which I am familiar. Some aircraft that The Boeing Company sold to China contained some avionics equipment manufactured by a 3rd party which contained some chips that had been restricted. Boeing took the hit because they sold the planes to a Chinese airline. The fact that Boeing did not design or make the gear was irrelevant. Boeing had sold the airplanes containing the controlled technology without a license to do so. Boeing was forced to pay a significant fine (even for Boeing).
From what I understand, SMCI did not sell any equipment containing controlled technology to a foreign entity. A reseller is the accused with respect to the sale. However, this does not automatically let SMCI off the hook for the offense. Did the reseller have a history of dealing with a banned party (this may be as granular as a named person)? Has the reseller been charged with such sales in the past? And so forth, any transactions with which SMCI should have been aware would possibly be sufficient to charge SMCI with a violation. I don’t know if that explanation illuminates the situation, but that’s as much as I know about it.
Separately, the SEC has sent SMCI notification that they have 180 days in which to submit their 10-K. Should they fail to do so, they are at risk of delisting. However, there is an appeal process should SMCI believe they have sufficient justification for further delay with respect to filing. This is all routine, such notification goes out to every listed company that has missed a 10-K filing date.
Without any inside knowledge I am reasonably confident that the filing will be completed within the stipulated time frame. SMCI was delisted for similar cause not very long ago. We can only assume that they would do everything in their power to file prior to the deadline expiring. OTOH, there is a possibility that they may request additional time. I have no idea how the SEC makes a decision to delist or grant additional time.
The unofficial date for SMCI to report earnings for 1Q25 is 10/30. One would think that they would want this reporting problem cleared up prior to the quarterly earnings report. While the 10/30 date has not been confirmed by SMCI, I don’t think that they could slide it by very much. Therefore, I for one feel that it’s likely that the 10-K will be filed this month or early November at the latest. That’s just my guess, nothing more.
While all of this is a mess and reflects poorly on the company. I think it’s valid to ask how it may impact SMCI’s sales and general ability to carry out business. I would posit that immediate sales would not be impacted at all. I think it’s safe to say that they will report another outstanding quarter of revenue and hopefully show some margin improvement.
But, there is another problem which should not be dismissed. SMCI has been running with negative OCF and FCF. In simple terms, they have a need for money in order to keep operations operating. Their ability to borrow may be constrained until the financial clouds are dispersed. The DoJ problem may also impact their ability to obtain loans. This would be quite troubling. Of course they could issue stock, but existing stockholders would be required to handle the dilution. That may well be a stretch. I don’t have any words to soften this potential problem. In fact, I’m not sure it is a problem, it is nothing more than my assessment. I’m not an underwriter. I really don’t know what factors are within the boundaries of consideration.
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“Super Micro Computer (SMCI) was temporarily delisted from the Nasdaq in 2018 for failing to file financial statements.”
“In 2020, the SEC charged SMCI with accounting violations, including: Prematurely recognizing revenue, Understating expenses, and Shipping goods to customers before authorization.”
Then they missed filing financial statements again in 2024?
A bit much for me.
Kindest regards,
Happyhunting
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I didn’t find this anywhere. Link?
What I did find was from SuperMicro itself:
Super Micro Computer, Inc. (NASDAQ:SMCI) (“SMCI” or the “Company”), a Total IT Solution Provider for AI, Cloud, Storage and 5G/Edge, today announced that the Company received a notification letter from Nasdaq stating that the Company is not in compliance with Nasdaq listing rule 5250(c)(1), which requires timely filing of reports with the U.S. Securities and Exchange Commission. The September 17, 2024 letter was sent as a result of the Company’s delay in filing its Annual Report on Form 10-K for the period ending June 30, 2024 (the “Form 10-K”). The Form 10-K was due on August 29, 2024. The Company filed a Form 12b-25 on August 30, 2024.
and
Under the Nasdaq rules, the Company has 60 days from the date of the notice either to file the Form 10-K or to submit a plan to Nasdaq to regain compliance with Nasdaq’s listing rules. If a plan is submitted and accepted, the Company could be granted up to 180 days from the Form 10-K’s due date to regain compliance.
So, they have 60 days from 17Sept to submit or file a plan to submit. If a plan, then only if the SEC accepts it do they have 180 days.
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They filed an 8k on September 30 that talks about the stock split and the loan agreement, and it also talks about when they might file their 10K. The relevant part is below:
The ABL Amendment, among other things, extends the date by which the Company is required to deliver its audited financial statements for its fiscal year ending June 30, 2024 (the “FY2024 Financial Statements”) under the ABL Agreement from September 28, 2024 to November 27, 2024 and adds a $70 million availability block to the U.S. borrowing base thereunder.
So they seem to be saying that they have until Nov 27 to submit their 10k.
Jonathan
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Thanks for that. Link to the 8K here: SMCI 8-K & SEC Filings - Yahoo Finance
The sentence before the one you quoted says:
On September 27, 2024, Super Micro Computer, Inc. (the “Company”) entered into a Ninth Amendment to Loan and Security Agreement (the “ABL Amendment”), by and among the Company, the lenders party thereto, and Bank of America, N.A., as administrative agent for the lenders, which amends the Loan and Security Agreement, dated as of April 19, 2018 (as amended, the “ABL Agreement”).
My read is that the date extension (“ABL Amendment”) described in the 8K is NOT something the SEC approved, but something SMCI loan-holders (including BofA) are OK with. That Nov 27th date is just 10 days beyond the SEC standard 10K extension deadline of 60 days from Sept 17.
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Smorg, I agree with you. I had it wrong. I thought I read that they had a routine 180 days to file, but based on your note they get 60 days in which they must file the 10-K or appeal to the SEC for an extension. The extension, if granted, allows another 180 days. It’s not totally clear if they get as much as 240 days, or if they get 180 days from the grant date. Presumably, they will appeal for more time if they need it prior to the 60 day deadline.
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The article SMCI released says “could be granted up to 180 days from the Form 10-K’s due date.”
I think missing the 60-day November date and asking for more time would not be good.
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I have changed my mind yet again about SMCI and I have bought back in. I have regretted selling all my shares about a month ago. I had held SMCI since May 2023 and I was up 100% or more - but then last month I got scared by the DOJ probe as well as the still yet to be filed 10k and the short report.
However, today I have bought back in again. Obviously at a higher price than what I sold at 25 days ago (about 18% higher!) I have bought a 16% position - not as high as before, but still a high confidence position for me.
I believe that they will most likely file their 10k before they report their new earnings early next month - and that then the stock will rise still more.
I think that if the DOJ do eventually find anything that it will result in a fine for the company and then the company will move on.
Demand for their servers remains very high, as is seen by their release on Oct 7 where they stipulated they were shipping 100,000 GPU’s per quarter, and I expect the numbers early next month to back this up.
So I am back in.
My portfolio now looks like this:
NVDA - 52%
SMCI - 16%
PGY - 15%
APP - 9%
CLS - 8 %
Jonathan
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So no concerns that CIOs will be scared away? I think that is likely but that the CIOs will not find a replacement as everyone is GPU constrained so perhaps no net effect?
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Not really. I think that demand for AI data centres and servers continues to be insane, to quote NVDA, and that supermicro will continue to benefit from this.
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@jonathan1 I agree with you. I never sold my shares, it would have been a good decision a few months ago, but at this point I don’t see how this stock can do anything but rise - probably dramatically after earnings report in a few weeks.
In spite of all the negative sentiment, I haven’t seen anything that impairs their basic mission of building and selling high end servers. They have the fastest time to delivery, soonest time to online and the lowest total cost of ownership. In addition, SMCI is renowned for first class customer support.
I could be wrong, but I just don’t see why any customer, current or potential, would care whether or not their 10-K was filed in a timely manner. Maybe it would be an issue if there were reason to believe that their business continuity was at risk. At worst, they will be hit with a fine and an admonition to fix whatever is broken and then they will move on.
Am I being overly optimistic? Seldom have I been accused of that, if anything my sentiments tend to lean towards pessimism. But in this case, at this time I think there’s a lot more in favor of an upside view than down.
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I held through the first blow, but the DOJ was too much and I sold out.
I regret it, because I work with AI/ML and I know the demand isn’t going anywyere. I also realised the DOJ might just have been a rumor used to fuel shorts profits - I am still getting used to the fact that short-reports and stuff like that are somehow legal.
I thought about buying back, but I wouldnt be doing justice to my decisional process if I didn’t wait for an all clear message on the DOJ and 10-K part.
I sold between 38-42, and I am fully aware that might mean buying back in the 60s.
I just can’t fanthom why they haven’t cleared the water yet to be honest 
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I’m out and out for good.
SMCI was very good to me, it’s still one of my biggest realized profit positions and I believe the market has a long runway.
But that last earnings conference call left me with huge doubts. Sadly, because everybody was so positive about it, I let the board convince me to doubt my doubts. That is my growth area and I continue to be humbled by how hard it is to get past this. My new plan is that if I have strong doubts I listen to no one. Let me see if I can really follow through on this.
Anyone who is still long on SMCI should LISTEN TO (not read) the conference call. My big issue was how the CEO dodged the questions about liquid cooling having high failure rates. This CEO has dodged questions before but when the stock was going up, I gave him a “maybe he doesn’t understand English that well” pass.
But this time the analyst asked the question multiple times - refused to give up - and the CEO just dodged and dodged. It left me with a distaste in my mouth I could not shake - like he was shady. Then all this stuff rains down afterward, it was too much to bear.
Seriously, longs, if you have not listened to the conference call (different that reading it) you should.
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I respect your view, and I can understand why you feel that. I did listen to the conference call, as well as read it the following day, and I’ve listened to all of their calls since I first invested in SMCI back in May 2023. Over time I’ve come to accept that even though Charles Liang is sometimes evasive and difficult to understand, the numbers they are putting out speak for themselves. Perhaps it is part of his culture not to answer in a straightforward way? I don’t know and I obviously wish it were otherwise, but his lack of clarity at times has certainly not harmed the stock price since I first bought in at $19.7 (split adjusted).
Jonathan
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“Perhaps it is part of his culture not to answer in a straightforward way?”
My wife is Chinese, mainland, but despite the political differences, the culture is the same in Taiwan as it is in mainland China.
At one point I considered importing china from Jingdezhen, a city well known for ceramics. If you walk around the main business district there’s at least one dealer on every block, often more.
Anyway, the reason I mention it is that your comment reminded me of how hard it was to get simple answer to a straightforward question.
Unlike America, in China very few people have dishwashers. Dishes that are washed in a dishwasher are subjected to much stronger detergents than hand washed dishes, strong enough to erode the glazing. I asked a store owner if their dishes could be washed in a dishwasher. The reply was something to the effect that dishwasher safe ceramics required a special process. Interesting, but not an answer. I don’t recall the exact conversation (this was in 2012), but I do remember that I had to ask the question several times before I finally got “no” for an answer. During the conversation I also learned that they were capable of making dishwasher safe dishes, but different pricing would be required.
In that I was not committed to starting an import business, let alone working with this company, assuming that pricing questions would take several hours, I did not pursue it. Instead, I just bought some dishes to see how they would hold up in my dishwasher.
The answer is not very well. The design was very beautiful, but most of the fine details were lost very quickly. Then, upon further investigation about importing dishes I was confronted with a mountain of safety regulations. I appreciated the protections, but I also didn’t want to deal with them. So ended my import venture.
I could relate several experiences that were similar in nature. It is a facet of Chinese culture to speak indirectly. It’s not evasiveness, or at least not all the time. I’m not trying to make excuses for Mr. Liang. I’m only pointing out that his apparent evasiveness was not necessarily avoidance. I haven’t re-read the transcript so I’m speculating, but I’d venture that most of his answers were pretty indirect no matter what the question.
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I would not be surprised if they report good earnings despite the current problems. I would be surprised if they can keep Dell and other box-builders at bay for long. Their technology is reproducible. PC boards, high bandwidth backplanes, water cooling, and chips bought from vendors who sell to the world (e.g NVDA, INTC, AMD). Big hardware companies with lots of money to spend will jump into that arena. Those big companies have had a year to see how well it went for SMCI.
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Yes, but is not always reproduced. E.g., competition may be emphasizing lower price more in their decisions than SMCI and it turns out that currently customers are willing and motivated to pay the higher price because they want the last iota of performance … or at least the perception of it.
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As someone with quite a number of years experience in Asia, that was a complete answer. It is just that if a person is not plugged in to Chinese culture, we would miss the unstated part. The unstated part was ‘special processes are special, and you’ll need to pay extra for them’.
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I feel like this thread has become the equivalent of asking: “Other than that, Mrs Lincoln, how did you like the play?”
Under the current CEO, SuperMicro previously (circa 2018) engaged in fraud. This was proven/acknowledged, and SuperMicro was delisted and paid penalties. Eventually, under a new CFO, the company was able to get relisted. But, that CFO is gone, execs that resigned/fired over the previous fraud are now rehired, if not directly into the company into sister companies mostly owned by the still CEO, and the Hindenburg report, while probably overdone, did contain enough meat that SuperMicro is (still) delaying its 10K report and the DOJ, according to the WSJ, has started an investigation.
There’s no argument that SuperMicro’s products are great. Yeah, some concerns about margins and other normal business challenges, but when you got billows of smoke arising from a known fire-starter, I just can’t ignore the possibility of yet another dumpster fire.
I may leave money on the table by not reinvesting in SMCI, but there are other companies doing well that don’t have the same level of risk.
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