Supermicro, which designs and manufactures high-performance servers, storage systems, and other IT infrastructure, has had a turbulent few months, even as the year has shown great promise amidst frenzied demand for AI-ready infrastructure.

The company’s sales forecasts have been downgraded, its auditor resigned, it failed to provide a timeline for official financial statement filings, and it has been accused of shady internal accounting dealings. Finally, due to its lack of financial reporting, it could be delisted from the Nasdaq stock exchange in less than two weeks (which would mark its second delisting in six years).

All this will undoubtedly continue to drive stock prices down and degrade the company’s already tenuous reputation among investors — but it’s not likely to have much of an impact on customer sentiment, analysts say.

“These are financial reporting issues that customers may not care about anywhere near as much as investors will,” said Kuba Stolarski, a research VP with IDC specializing in compute infrastructure and service provider trends. “I think it would take more than accusations and investigations into accounting practices to draw customers away from Supermicro.”

A string of accounting and reporting troubles

This week the company projected its Q4 revenue to be between $5.5 and $6.1 billion, a slide from its previous estimate of $6 to $7 billion, and far below analyst expectations of $6.79 billion. This caused its stock to tumble roughly 20% on Wednesday, although it has since rebounded by 12% (as of the close of the market on Thursday).

Prior to this, the company missed the August deadline to file its annual 10-K financial report. While it did say both the filing and the publishing of its annual report would be delayed, it has failed to provide a hard (or even an approximate) date for the delivery of either.

This comes along with the news last week that the company’s auditor, Ernst & Young, resigned, causing Supermicro’s stocks to plunge more than 30%. The accounting firm said it reported to Supermicro’s auditing committee in July “concerns about several matters relating to governance, transparency and completeness of communications.” EY only just signed on as Supermicro’s auditor earlier this year, but it claimed that it could “no longer” rely on management’s and its audit committee’s representations and was “unwilling to be associated with the financial statements prepared by management.”

Further, Supermicro was scrutinized in an August report by Hindenburg Research, which found “glaring accounting red flags,” as well as evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues. The report was the result of a three-month investigation involving interviews with former senior employees and industry experts, along with reviews of litigation records, international corporate and customs records.

In the face of all this, the Nasdaq has given Supermicro until November 16 to file its 2024 annual report and remain in compliance, lest it be delisted. The company has been here before: It was temporarily removed from the Nasdaq in 2018, also for failing to file financial statements.

On an analyst conference call this week, Supermicro CEO Charles Liang said the company was “working with urgency to become current again with our financial reporting.”

‘Spy chips’ most likely worse than accounting problems

Supermicro counts among its customers nearly all the big players in big tech, including semiconductor darling Nvidia, Intel, AMD, IBM, and Microsoft. In June, the company also made headlines — giving its shares a jolt — when Elon Musk said it and Dell were both supporting his xAI supercomputer project.

Some have reported that Nvidia is diverting orders to other providers, purportedly to distance itself from Supermicro and diversify the supply chain. However, the two are likely unrelated, Stolarski asserted. Supermicro has done well with Nvidia — it has a high-end platform and several large customers ready to deploy. But now other vendors are catching up, so it makes sense that more Nvidia GPUs will go to other server vendors.

Even if the claim is true, said IDC’s Stolarski, it “doesn’t necessarily mean anything.”

Indeed, the company recently announced a new plug-and-play AI infrastructure tool for Nvidia’s Omniverse platform that supports high-performance generative AI-enhanced 3D workflows.

The “spy chip” claim by BusinessWeek was likely more damaging, Stolarkski pointed out: In 2018, the publication reported that tiny spy chips planted by Chinese operatives were found on Supermicro server motherboards. “The spy chip story from several years ago probably dealt a larger blow because it represented a potential threat to customers’ security,” he said.

IDC recorded declines in Supermicro’s server revenue in 2019 (-13%) and 2020 (-5%), he noted. However, since 2021 the company has been growing significantly, with the first half of 2024 already surpassing all of last year’s revenue by 2%.

“This is the period, starting around 2021, when we saw Supermicro re-engage with larger customers and win some large deals,” Stolarski said. Much of this was because they were one of the first original equipment manufacturer (OEM) to make an 8-GPU server available when large customers were on what he called a shopping spree. Most of the other major vendors didn’t follow suit until later.

“However, Supermicro did seem to get more attention, especially early in 2023, with their 8-GPU system,” he said. “Perhaps it was the combination of having engaged the large CSPs and having the 8-way platform that gave them the early lead, and from there they got a lot of attention as their earnings growth took off. I do believe that the playing field has been evened out a bit since then.”

Supermicro’s biggest competitive advantage is its engineering-focused approach to its product portfolio, Stolarski asserted. “They are now almost always first to market with new solutions and updates to their products,” he said.

The service provider space (large and small) has also been a key part of the company’s growth. This has “clearly been where they’ve done well in the last few years as these customers invest in infrastructure for AI, and need to do it quickly,” said Stolarski. “I think their ability to pivot and design new systems and incorporate new technologies and solutions as required by this market segment has really been the crux of their value proposition.”