Accounting woes appear to loom larger for investors than the revised revenue outlook
Super Micro Computer Inc. did not offer investors any clear answers to questions in an investor call about its accounting woes Tuesday, leaving intact the dark cloud hanging over the company and its embattled shares.
Last week, investors were dismayed by the news that Super Micro's auditor, Ernst & Young, resigned loudly and abruptly, amid a delayed 10K filing for fiscal 2024. Super Micro (SMCI) saw its stock soar around 246% last year on its massive revenue growth due to AI server demand, then saw its stock lose all its gains of 2024 in the past week, after the news of EY's resignation sparked new fears about the server maker.
Also read: Super Micro can't say when it will file its annual report
In addition, the company lowered its revenue outlook for its fiscal first and second quarters, explaining on its call with analysts that some customers are waiting for Nvidia Corp.'s (NVDA) delayed next-generation Blackwell line. Super Micro now expects fiscal first-quarter revenue to range from $5.9 billion to $6.0 billion, down from its previous guidance of $6.0 billion to $7.0 billion. Second-quarter revenue was forecast to range from $5.5 billion to $6.1 billion, a sequential deceleration, and far below Wall Street consensus estimates of $6.8 billion, according to FactSet.
"Revenue reduced a little bit, the major reason is because some customers are waiting for the new chip," Super Micro Chief Executive Charles Liang told analysts Tuesday. "People are waiting for the new solution."
Super Micro's once high-flying shares tumbled during Tuesday's call, ending the after-hours session down 15.9% to $23.30. Investors are worried about the company's potential delisting from the Nasdaq, which could happen if it does not find another auditor soon. When asked several questions about the auditor situation or an updated timeline to submit its delayed financials, executives were mostly mum.
"We are working diligently to get that done as quickly as possible," said Chief Financial Officer David Weigand.
But that was not what investors wanted to hear. They are currently more concerned about the auditing issue, its delayed financial results, and fears over the reasons EY quit, even as management said they disagreed with EY's decision.
Last week, the accounting firm stated, according to Super Micro's SEC filing, that it "could not rely on representations from certain members of management and from the audit committee." EY also said information it had received raised questions about whether the audit committee and the board were willing to "act as an oversight body that is independent of the CEO." One analyst on the call asked if co-founder and CEO Liang, who is also chairman, was willing to consider separating the chair and CEO roles.
Liang said that while he is very open minded, he had no comment about that right now. "Someday I will retire," he said.
Investors are extremely nervous that the company will be delisted, which would be the second time in the past six years if it were to happen. Wedbush Securities analyst Matt Bryson wrote in a note Monday that "it arguably appears to be an uphill battle for SMCI to remain listed at this point."
He also noted that the company's accounting woes were currently overshadowing its financial results. And the accounting issues could also be hurting its business; there was a report in Asia that Nvidia was trying to spread out the allocation of its chips to ensure the stability of the AI server market. When asked about its allocation of Nvidia chips, Liang probably made the most reassuring statement of the entire call, pointing out the company's decades long relationship.
"As of this moment...things are very positive," he said.
But until the company gets an auditor to help it sort out its financial disarray, investors are going to be focused on the delisting fears. Nothing else will help move this stock back into positive territory at this point.
-Therese Poletti
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