Super Micro Computer Inc., a Silicon Valley-based company, is the latest target of a new investigation by Hindenburg Research regarding potential accounting manipulation and sanctions evasion. As a result, shares of the Nasdaq-listed company fell by almost 4 percent on August 27.

Super Micro Computer Inc. (Nasdaq: SMCI) was added to the Nasdaq-100 Index on July 22, 2024. Super Micro Computer trades at around $541 and is up by over 107% over the last 12 months and has clocked over 90% in 2024 so far.

Initial Disclosure in the Hindenburg Research states: After extensive research, we have taken a short position in shares of Super Micro Computer, Inc. (Nasdaq:SMCI). This report represents our opinion, and we encourage every reader to do their own due diligence.

Hindenburg Research writes that there is fresh evidence Of Accounting Manipulation, Sibling Self-Dealing And Sanctions Evasion At Super Micro Computer. Here are a few excerpts from the report:

Super Micro Computer Inc. is a $35 billion server maker based in Silicon Valley, California that has ridden the wave of AI enthusiasm.

Our 3-month investigation, which included interviews with former senior employees and industry experts as well as a review of litigation records, international corporate and customs records, found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.

A new CFO, praised by co-workers for his integrity, was hired in January 2018 to help the company recover from the scandal. He helped Super Micro re-list but resigned in January 2021. A former sales director suggested that he was edged out by the company.

Beyond fresh questions around its revenue accounting, we found that Super Micro’s relationships with both disclosed and undisclosed related parties serve as fertile ground for dubious accounting.

For example, disclosed related party suppliers Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last 3 years. Ablecom is also partly owned by Super Micro CEO Charles Liang and his wife.

The relationships seem oddly circular. Super Micro provides components to the entities which assemble them and sell them back to Super Micro. They also rent warehousing and factory space to Super Micro even though it has its own sprawling factory.
The related parties seem to do little other business: ~99.8% of Ablecom’s exports to the U.S. since 2020 were to Super Micro, and ~99.7% of Compuware’s U.S. exports were to Super Micro, per trade records.

In addition to the concerns around the disclosed related parties, we found evidence of undisclosed related parties. The youngest brother of Super Micro’s CEO owns two Taiwan-based entities that make server components. Media reports and former employees indicate the entities are Super Micro suppliers.

Both entities operate out of the Super Micro Science and Technology Park in Taiwan, but Super Micro has not disclosed related party transactions with them.

Another brother of Super Micro’s CEO operates a disclosed related party but is also the director and shareholder of undisclosed Hong Kong and Taiwanese entities, which appear to resell Super Micro products and provide “professional OEM services.” It operates out of the same building as related party Compuware.

Collectively, disclosed and undisclosed related parties pose accounting risks relating to revenue recognition and reported margins. A former executive told us: “Basically it’s a governance issue and just kind of shows you that Charles doesn’t give a shit what you think…you’re right to worry, though, that you just never know what’s lurking.”

In addition to the CEO’s brothers, the company has an odd relationship with a key customer. In February 2024, Super Micro made an undisclosed investment in tech startup Lambda Labs as part of its $320 million funding round, per Bloomberg and per a confirmation we received from Lambda’s COO.

In August 2024, Super Micro signed an “unusual” $600 million contract to lease space at a California data center and sub-lease it to Lambda. The CFO glossed over questions about the reason for this arrangement.

In October 2023, two related parties run by CEO Liang’s brothers, one of them partially owned by Super Micro’s CEO, reportedly invested in small Taiwanese tech company Leadtek. Leadtek’s website advertises products almost identical to Super Micro’s, yet Super Micro discloses no relationship with Leadtek in what appears to be a clear undisclosed related party.