Charles Liang, chief executive officer of Super Micro Computer Inc., through the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.Â
Annabelle Chih | Bloomberg | Getty Images
Super Micro Computer may very well be headed down a path to getting kicked off the Nasdaq as soon as Monday.
That is the potential fate for the server company if it fails to file a viable plan for becoming compliant with Nasdaq regulations. Super Micro is late in filing its 2024 year-end report with the SEC, and has yet to switch its accounting firm. Many investors were expecting clarity from Super Micro when the corporate reported preliminary quarterly results last week. But they didn’t get it.
The first component of that plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission, and why it was late. That report is something many expected could be filed alongside the corporate’s June fourth-quarter earnings but was not. Â
The Nasdaq delisting process represents a crossroads for Super Micro, which has been one among the first beneficiaries of the bogus intelligence boom because of its longstanding relationship with Nvidia and surging demand for the chipmaker’s graphics processing units.Â
The one-time AI darling is reeling after a stretch of bad news. After Super Micro did not file its annual report over the summer, activist short seller Hindenburg Research targeted the corporate in August, alleging accounting fraud and export control issues. The corporate’s auditor, Ernst & Young, stepped down in October, and Super Micro said last week that it was still trying to seek out a latest one.
The stock is getting hammered. After the shares soared greater than 14-fold from the top of 2022 to their peak in March of this 12 months, they’ve since plummeted by 85%. Super Micro’s stock is now equal to where it was trading in May 2022, after falling one other 11% on Thursday.
Getting delisted from the Nasdaq may very well be next if Super Micro doesn’t file a compliance plan by the Monday deadline or if the exchange rejects the corporate’s submission. Super Micro could also get an extension from the Nasdaq, giving it months to return into compliance. The corporate said Thursday that it would offer a plan to the Nasdaq in time.Â
A spokesperson told CNBC the corporate “intends to take all crucial steps to attain compliance with the Nasdaq continued listing requirements as soon as possible.”
While the delisting issue mainly affects the stock, it could also hurt Super Micro’s popularity and standing with its customers, who may prefer to easily avoid the drama and buy AI servers from rivals equivalent to Dell or HPE.
“Provided that Super Micro’s accounting concerns have change into more acute since Super Micro’s quarter ended, its weakness could ultimately profit Dell more in the approaching quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.
A representative for the Nasdaq said the exchange doesn’t comment on the delisting process for individual firms, but the principles suggest the method could take a couple of 12 months before a final decision.
A plan of compliance
The Nasdaq warned Super Micro on Sept. 17 that it was vulnerable to being delisted. That gave the corporate 60 days to submit a plan of compliance to the exchange, and since the deadline falls on a Sunday, the effective date for the submission is Monday.
If Super Micro’s plan is suitable to Nasdaq staff, the corporate is eligible for an extension of as much as 180 days to file its year-end report. The Nasdaq desires to see if Super Micro’s board of directors has investigated the corporate’s accounting problem, what the precise reason for the late filing was and a timeline of actions taken by the board.
The Nasdaq says it looks at several aspects when evaluating a plan of compliance, including the explanations for the late filing, upcoming corporate events, the general financial status of the corporate and the likelihood of an organization filing an audited report inside 180 days. The review also can have a look at information provided by outside auditors, the SEC or other regulators.
Last week, Super Micro said it was doing every part it could to stay listed on the Nasdaq, and said a special committee of its board had investigated and located no wrongdoing. Super Micro CEO Charles Liang said the corporate would receive the board committee’s report as soon as last week. An organization spokesperson didn’t respond when asked by CNBC if that report had been received.
If the Nasdaq rejects Super Micro’s compliance plan, the corporate can request a hearing from the exchange’s Hearings Panel to review the choice. Super Micro won’t be immediately kicked off the exchange – the hearing panel request starts a 15-day stay for delisting, and the panel can resolve to increase the deadline for as much as 180 days.
If the panel rejects that request or if Super Micro gets an extension and fails to file the updated financials, the corporate can still appeal the choice to a different Nasdaq body called the Listing Council, which might grant an exception.
Ultimately, the Nasdaq says the extensions have a limit: 360 days from when the corporate’s first late filing was due.
A poor track record
There’s one factor at play that would hurt Super Micro’s probabilities of an extension. The exchange considers whether the corporate has any history of being out of compliance with SEC regulations.
Between 2015 and 2017, Super Micro misstated financials and published key filings late, in accordance with the SEC. It was delisted from the Nasdaq in 2017 and was relisted two years later.
Super Micro “might need a harder time obtaining extensions because the Nasdaq’s literature indicates it’ll partly ‘consider the corporate’s specific circumstances, including the corporate’s past compliance history’ when determining whether an extension is warranted,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He has a neutral rating on the stock.
History also reveals just how long the delisting process can take.Â
Charles Liang, chief executive officer of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., through the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.Â
Annabelle Chih | Bloomberg | Getty Images
Super Micro missed an annual report filing deadline in June 2017, got an extension to December and eventually got a hearing in May 2018, which gave it one other extension to August of that 12 months. It was only when it missed that deadline that the stock was delisted.
Within the short term, the larger worry for Super Micro is whether or not customers and suppliers begin to bail.
Except for the compliance problems, Super Micro is a fast-growing company making some of the in-demand products within the technology industry. Sales greater than doubled last 12 months to just about $15 billion, in accordance with unaudited financial reports, and the corporate has ample money on its balance sheet, analysts say. Wall Street is expecting much more growth to about $25 billion in sales in its fiscal 2025, in accordance with FactSet.
Super Micro said last week that the filing delay has “had a little bit of an impact to orders.” In its unaudited September quarter results reported last week, the corporate showed growth that was slower than Wall Street expected. It also provided light guidance.
The corporate said one reason for its weak results was that it hadn’t yet obtained enough supply of Nvidia’s next-generation chip, called Blackwell, raising questions on Super Micro’s relationship with its most vital supplier.
“We do not believe that Super Micro’s issues are a giant deal for Nvidia, even though it could move some sales around within the near term from one quarter to the following as customers direct orders toward Dell and others,” wrote Melius Research analyst Ben Reitzes in a note this week.
Super Micro’s head of corporate development, Michael Staiger, told investors on a call last week that “we have spoken to Nvidia they usually’ve confirmed they’ve made no changes to allocations. We maintain a robust relationship with them.”
