Super Micro, a Silicon Valley tech company, has recently found itself in turbulent waters after experiencing significant growth during the AI boom.
Valued at $20 billion, the manufacturer produces critical hardware for top artificial intelligence models, notably high-performance servers that support leading AI chips like those from Nvidia.
Over the past five years, Super Micro’s stock skyrocketed more than 3,000%, and its revenue doubled to $7.12 billion, marking its entry onto the Fortune 500 list. However, the company has been plagued by ongoing accounting issues. It settled with the Securities and Exchange Commission (SEC) in August 2020 over alleged violations that spanned two years. More recently, in 2024, the short-seller Hindenburg Research accused Super Micro of continuing questionable accounting practices.
The company’s situation took a severe turn when its auditor, Ernst & Young (EY), resigned during its engagement with Super Micro. This type of departure is viewed as a significant red flag in the financial community. In a subsequent letter to regulators, EY stated it could only agree with select disclosures made by Super Micro, leaving many of the company’s assertions unvalidated.
Following the announcement of EY’s resignation, Super Micro’s stock plummeted by 33%. Governance expert Jason Schloetzer from Georgetown University noted that this resignation suggests “irreconcilable differences” between management and the auditor, which will likely draw scrutiny from capital markets and regulatory agencies.
Super Micro’s communication with investors indicated that it does not expect EY’s concerns to necessitate restatements of financial reports for the fiscal year ending June 30, 2024. However, the formation of a special committee to investigate EY’s concerns, which involves hiring a law firm and forensic accounting firm, underscores the seriousness of the situation.
The resignation was marked by EY’s assertion that it could no longer rely on management or the audit committee, which is intended to consist of independent directors. Accounting expert Francine McKenna described the situation as one of the most severe instances of auditor withdrawal, warning that the inability to trust management is a grave concern.
Super Micro has announced a business update call for November 5, coinciding with Election Day. Amy Lynch, a former SEC regulator, indicated that EY’s departure suggests serious concerns about the company that may lead to an investigation by the SEC for accounting-related fraud.
In addition to these financial difficulties, Super Micro has faced governance challenges rooted in its familial ties. Founded in 1993 by CEO Charles Liang and his wife, Sara Liu, the company has multiple family members in key positions. Disclosures indicate complex inter-company relationships involving relatives, raising concerns about conflicts of interest and the transparency of financial transactions.
