Supermicro gets downgraded as it faces more legal drama
Super Micro Computer, Inc. (SMCI), also known as Supermicro, finds itself mired in more legal drama after US federal prosecutors charged the company's co-founder Yih-Shyan "Wally" Liaw with conspiring to smuggle $2.5 billion of Nvidia (NVDA) GPU servers into China.
According to federal prosecutors, Liaw conspired with Supermicro's Taiwan general manager Ruei-Tsang “Steven” Chang, and a “fixer” named Ting-Wei “Willy” Sun to route servers with Nvidia H200 and B200 GPUs through an unnamed company in Southeast Asia and then onto buyers in China.
The US government has banned H200 and B200 GPUs from being shipped to China.
The Department of Justice (DOJ) arrested Liaw and Sun, but authorities said that Chang remains a fugitive.
Supermicro announced late Friday that Liaw has resigned from the company's board of directors, effective immediately. The company also said that it has named DeAnna Luna as its chief compliance officer, which is also effective immediately.
Luna had previously worked as vice president of global trade and sanctions compliance for Supermicro. Before joining the company in 2024, she worked at Intel Corporation (INTC), according to her LinkedIn profile.
In a statement about the DOJ charges, Supermicro said that it has placed both Liaw and Chang on administrative leave and "terminated its relationship" with Sun, whom it described as a contractor.
According to the company, it "has been cooperating fully with the government's investigation and will continue to do so."
Supermicro is not named as a defendant in the indictment.
"The conduct by these individuals alleged in the indictment is a contravention of the Company's policies and compliance controls, including efforts to circumvent applicable export control laws and regulations," the company said in its statement. "Supermicro maintains a robust compliance program and is committed to full adherence to all applicable U.S. export and re-export control laws and regulations."
SMCI shares plunged 33% following the indictment, but recovered on Monday to close up more than 5%.
Analyst raises questions about Nvidia partnership
The DOJ also opened an investigation into Supermicro in September 2024 after short-seller Hindenburg Research published a report in August saying that it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export-control failures, and customer issues."
Ernst & Young, which had served as Super Micro's auditor, then quit the following month, raising concerns over the company's corporate governance, accounting practices and the board's independence from CEO Charles Liang.
On Monday, Northland analyst Neal Chokshi downgraded SMCI shares to Market Perform from Outperform, citing "governance overhang" and a "limited growth outlook without structural changes."
Choksi noted that the lack of independence between the board and Liang continues to be a concern, just as it was two years ago.
"Until actions are taken to separate Chairman and CEO roles, we believe SMCI will be challenged with flattish revenue and earnings growth," he said.
Although Bernstein SocGen analyst Mark C. Newman maintained a Market Perform rating on SMCI shares in a client note on Monday, he pointed out that the company is facing "credibility issues from repeated association with alleged misconduct" despite it not being named as a defendant in the case.
"It's one thing being duped once by rogue employees (allegedly) committing crime right under your nose, but it's quite another hiring the same person back (as a board director too) and later for that same person to (allegedly) do something worse like this," Newman said.
He added that the reputational damage could create significant long-term problems for Supermicro.
“We wonder if NVIDIA might feel the need to further distance themselves from SMCI," Newman said. "If so, this could impact SMCTs important supply of GPUs, which in turn could have a devastating impact on SMCI."