Super Micro Computer Inc. (SMCI) shares are taking a nosedive on Wednesday, plummeting over 23% after the company delivered a series of concerning updates. These updates include disappointing preliminary financial results, a business update regarding the resignation of its independent auditor, Ernst & Young (EY), and a downgrade from JPMorgan.
The company announced on Tuesday that it expects first-quarter revenue to come in between $5.9 billion and $6 billion, a significant drop from its previous guidance of $6 billion to $7 billion. Furthermore, adjusted earnings for the first quarter are expected to be between 75 cents and 76 cents per share. The second quarter doesn’t offer much relief, with revenue projected between $5.5 billion and $6.1 billion and adjusted earnings anticipated to range from 56 cents to 65 cents per share.
Adding to the woes, the company also shed light on the recent resignation of its independent auditor, EY. EY had expressed concerns about Super Micro’s governance, transparency, and communication practices. In response, Super Micro formed a Special Committee to investigate the matter. While the committee found no evidence of fraud or misconduct by management or the board, it did highlight issues regarding governance and oversight. The committee plans to recommend remedial measures to strengthen the company’s internal control and oversight functions.
During a conference call with analysts and investors, Super Micro declined to address any questions related to EY’s resignation or the company’s corporate governance issues. This silence only amplified investor concerns, especially as the company remains unable to provide a timeline for filing its Form 10-K, which was due on August 29th. Super Micro has been facing delays in its financial reporting since May and received a notification from Nasdaq in September about its non-compliance with timely filing requirements. The company secured an extension and has 60 days to regain compliance.
In response to these developments, JP Morgan analyst Samik Chatterjee downgraded Super Micro from Neutral to Underweight and slashed the price target from $50 to $23. This downgrade further fueled the decline in SMCI shares, highlighting investor skepticism about the company’s future prospects.
The market’s reaction to Super Micro’s announcements is a stark reminder of the importance of transparency, good governance, and timely financial reporting in the eyes of investors. It remains to be seen how the company will address the concerns raised by its auditor, the market, and its investors moving forward.
