Shares of Super Micro Computer, Inc. (SMCI) plummeted 30% on Wednesday following the resignation of Ernst & Young (EY) as the company’s auditor.
EY, in its resignation letter, cited serious concerns with Super Micro’s internal controls, board independence, and accounting practices, ultimately declaring itself “unwilling to be associated with management’s financial statements.”
This development adds to Super Micro’s challenges, as the company had already delayed its 2024 financial statement filings and faces a reported federal investigation.
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EY Resignation Raises Governance and Board Independence Issues
EY’s departure from Super Micro follows months of disagreement with the company regarding governance and board independence.
EY specifically expressed concerns over the independence of Super Micro’s board from CEO Charles Liang and other executives.
EY was appointed as Super Micro’s auditor for the 2024 fiscal year, marking its first term with the company.
The accountancy firm first flagged governance and financial reporting issues in late July, prompting the company to establish a special board committee to investigate its internal controls.
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,” Ernst & Young stated in its resignation letter.
The resignation follows a short-seller report released earlier this year, which also criticized Super Micro’s internal controls and accounting practices.
Internal Review Underway as Super Micro Grapples with Regulatory Scrutiny
Super Micro disclosed in a regulatory filing that it had enlisted law firm Cooley LLP and a forensic accounting firm to conduct a comprehensive review of its internal controls, which remains ongoing.
The server and storage solution provider, which joined the S&P 500 in March and whose shares surged 246% in 2023, has a history of regulatory scrutiny.
In 2020, the company paid a $17.5 million penalty to the Securities and Exchange Commission for prematurely recording revenue.
The company supplies hardware for high-performance computing and artificial intelligence applications, with clients that include tech giants such as Nvidia, AMD, and Intel.
However, the company now faces reputational and operational risks from EY’s resignation and the ongoing investigations into its financial practices.
Investor Uncertainty Amidst Federal Investigation and Delayed Financials
Super Micro has yet to issue its 2024 financial statements, fueling investor concerns as the company navigates increasing regulatory challenges.
The reported federal investigation further underscores potential risks for shareholders and partners.
As the company works through these issues, it remains unclear how quickly the company will be able to address its governance and financial control challenges.
With EY’s resignation and a short-seller report casting further scrutiny, Super Micro faces a critical period of reassessment and potential restructuring to regain investor confidence and stabilize its market position.
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