Supermicro under pressure: US server company's share price plummets
A financial company accuses Supermicro of manipulating its accounts. The share price, which rose enormously in the wake of the AI hype, collapsed as a result.
A GPU server from Supermicro with Intel computing accelerators.
(Image: c’t Magazin)
The Californian server manufacturer Supermicro is in troubled waters for the third time in the last ten years. At the end of August, the investment research company Hindenburg Research published a long report accusing Supermicro of several misconduct.
Charles Liang, the founder and CEO of Supermicro, denied the allegations in an open letter to investors, customers and partners. Charles Liang also warns investors that Hindenburg Research is pursuing its own interests as a short seller, i.e. that it is deliberately trying to depress Supermicro's share price. However, Supermicro was unable to submit the quarterly report required by the US Securities and Exchange Commission (SEC) on time –: They were currently investigating the allegations.
Supermicro's share price (SMCI) did indeed plummet. It had risen enormously in recent years in the wake of the AI boom. Supermicro is a close partner of Nvidia and is said to be one of the largest buyers of Nvidia's AI computing accelerators. Supermicro builds the latter into its own servers and then sells the machines on, including to prominent customers such as Tesla and xAI, namely for Colossus.
The Wall Street Journal is now reporting that the US Department of Justice (DOJ) is investigating the case. As a result, Supermicro shares plummeted even further.
Repeated allegations
(Image: Securities and Exchange Commission (SEC))
Reports of unauthorized manipulation of sales by Supermicro's sales department became known as early as 2015. In 2020, the SEC therefore imposed fines of several million US dollars on both Supermicro and the Chief Financial Officer (CFO) Howard Hideshima, who was responsible at the time.
Hindenburg Research now claims, citing a former Supermicro employee, that the company later rehired or employed several of the people responsible at the time. For example, Howard Hideshima has been working again as a consultant for the Taiwanese company Ablecom since May 2023, which is managed by Jian-Fa Liang, a brother of Supermicro CEO Charles Liang.
Family ties
Hindenburg Research also criticizes that the Liang family has built up an opaque corporate network. However, it has been known for many years that Ablecom, for example, manufactures power supply units and essentially supplies them to Supermicro.
Another supplier is the Taiwanese company Compuware Technology, run by Jian-Da Liang, another brother of Carles Liang. As representatives of their respective companies, his two brothers also sit on the supervisory board of the Taiwanese company Leadtek, which in turn also sells workstations and servers with Supermicro mainboards under the WinFast brand.
However, it is not only common in the IT sector for larger companies to buy relevant shares in important suppliers or take them over completely. It is also not uncommon for companies to invest in important customers of their products, for example to boost sales in certain countries, regions or sectors. Without evidence of specific misconduct in the business relationship between the companies involved, the allegations can neither be verified nor classified.
Strange accusations
(Image: YouTube/Supermicro)
At Computex 2024, Supermicro CEO Charles Liang held out the prospect of huge growth rates, particularly for water-cooled (Direct Liquid Cooled, DLC) AI servers. Supermicro had developed a water cooling system for this purpose.
Hindenburg Research now criticizes that the water cooling technology does not come from Supermicro itself, but from Ablecom, and proves this with the US patent US-11942397-B2. On the other hand, Hindenburg Research accuses Supermicro of having (too) close ties with Ablecom – This argument is not conclusive.
Other server manufacturers also market cooling systems and other components as in-house technology, even though they have developed them together with suppliers or simply buy them in.
This also applies to other areas of IT technology: the 3D V-Cache of AMD Ryzen processors with the additional designation X3D is essentially based on chip-on-wafer (CoW) packaging technology from contract manufacturer TSMC. Apple's chip-to-chip interconnect "UltraFusion" in turn uses TSMC's Integrated Fan-Out (InFO_LI). The automotive industry provides many more examples of such acquisitions; even the development is largely outsourced to service providers.
Old accusations
In 2018, Bloomberg claimed that espionage chips had been discovered on Supermicro server mainboards. These allegations have not yet been fully clarified. Bloomberg later failed to provide a detailed explanation of how the alleged spy chips worked, i.e. which data or data lines they could access and how they forwarded this data. As expected, Supermicro denies the allegations, but other industry experts also consider them to be inconclusive.
So all that is clear at present is that Supermicro violated US Securities and Exchange Commission rules from 2015 to 2017 and that there were further allegations in 2018 and 2024. However, it is also clear that a lot of money can be made even with strongly fluctuating share prices. This example shows that investors should be very careful if they also want to benefit from the current boom in AI shares.
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(ciw)
