Super Micro Computer stock plunged Wednesday after the data center specialist revealed in a regulatory filing that its accounting firm resigned over financial reporting concerns.
Super Micro disclosed in a filing with the U.S. Securities and Exchange Commission on Wednesday that Ernst & Young had resigned as the company's registered public accounting firm as of Oct. 24.
"In late July 2024, EY communicated to the Audit Committee concerns about several matters relating to governance, transparency and completeness of communications to EY, and other matters pertaining to the Company's internal control over financial reporting, and that the timely filing of the Company's annual report was at significant risk," the SEC filing said.
In response to EY's concerns, Super Micro's board appointed an independent special committee to review the matters. The special committee hired law firm Cooley LLP and forensic accounting firm Secretariat Advisors to perform an investigation.
EY said additional information received during the review process raised questions about whether the company was committed to integrity and ethical values. In particular, EY questioned whether the audit committee and overall board could act as an oversight body that is independent of the chief executive and other members of management.
In its resignation letter, EY said, "We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations."
Super Micro Stock Takes A Plunge
On the stock market today, Super Micro stock plummeted 32.7% to close at 33.07.
Super Micro shares reached an all-time high of 122.90 on March 8.
Concerns about the company's financial reporting and internal controls surfaced on Aug. 27 when short seller Hindenburg Research accused Super Micro of accounting manipulation, export control failures, customer issues and other problems. The next day, Super Micro announced a delay in filing its annual 10-K report with the SEC.
In late September, the Wall Street Journal reported that the U.S. Department of Justice is investigating Super Micro for alleged accounting irregularities.
Mizuho Securities analyst Vijay Rakesh reiterated his neutral rating on Super Micro stock on Wednesday.
"SMCI currently has a listing noncompliance letter from Nasdaq dated Sept. 17," Rakesh said in a client note. "We believe this notice gives SMCI 60 days (Nov. 16) to present a plan to return to compliance with Nasdaq requirements or face delisting (the second instance in the last 5 years)."
The lack of an auditor and the tight timeline to reach compliance with Nasdaq rules raise the prospect of Super Micro getting delisted from the exchange, he said.
Dell Stock Could Benefit From Super Micro's Woes
Meanwhile, rival Dell Technologies is likely to gain share in the AI server market during the period of uncertainty, Rakesh said.
Dell stock rose 6.4% to close at 129.40 on Wednesday.
Meanwhile, Needham analyst Quinn Bolton suspended his rating on Super Micro stock on the news.
In a client note, Bolton said Ernst and Young's resignation raises considerable questions about the validity of Super Micro's current and past financial statements.
"Ernst & Young's resignation will likely bolster the Justice Department's investigation into Supermicro, which carries its own risk," he said. "Further, we see increased default risk associated with the company's term loan agreement with Bank of America."
He added, "It is not often that a Big 4 audit firm fires a client. It is even more rare that a Big 4 firm resigns stating that it can no longer rely on the representations of management and the Audit Committee of the Board of Directors."
CFRA Research analyst Shreya Gheewala maintained her hold rating on Super Micro stock but slashed her price target to 31 from 43.
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