While investors were discussing the frightening potential thrown up Thursday by a Bloomberg News report of an alleged secret spy chip hidden on US servers by the Chinese government, the stock of one company was hit much harder than anyone else in the business. report.
That company, Super Micro Computer Inc.
SMCI, -41.12%
is a little-known server developer in Silicon Valley, who drove in the early days of the rise of datacenters, but has fallen out of the favor of investors in recent years due to an accounting cloud. The shares – currently traded over the counter – Thursday thundered by 41%, because the server components of the company were credited with a miniscule computer chip that was inserted during the manufacturing process in China and that allowed hackers to access any network with the changed motherboards.
Supermicro and three of its customers mentioned in the report, including Apple Inc.
AAPL, -1.76%
and Amazon.com & # 39; s
AMZN, -2.22%
AWS, the report has sharply denied.
"Super Micro Computer Inc. … powerfully refutes messages that servers they sell to customers contain malicious microchips in the motherboards of those systems," the San Jose, California-based company said in a statement. adding that each company in the article (Supermicro, Apple, Amazon and Elemental) gave strong refusals.
"It is claimed that Supermicro motherboards sold to certain customers contain harmful chips on their motherboards in 2015," the company said. "Supermicro has never found malicious chips and has not been informed by a customer that such chips have been found."
Read: Suppliers of Apple take a stock hit of $ 18 billion after hacking accusations by China
But the company is a bit of a mystery to Wall Street at the moment. The shares were disposed of by NASDAQ in August, after it had failed to submit a deadline for submitting the annual report for the fiscal year 2017, which ended in June and the following three quarterly reports. In a brief interview in August with the few remaining analysts who cover the company, Supermicro executives indicated that they were "reviewing thousands of sales transactions in detail" to complete its financial reports. Regulators seem to be concerned about the disclosure of revenue recognition of the company.
"The most important point is the quarter in which sales must be recognized," said Kevin Bauer, Supermicro's chief financial officer, to analysts. "We have not yet determined whether the scope of an adjustment of the timing is material for our previously submitted financial statements."
Supermicro was founded 25 years ago as a family business by Charles Liang, a Taiwanese engineer who came to the US to attend the University of Texas at Arlington. The company went public in 2007 and raised $ 64 million, with shares priced at $ 8 per share – under the reach of that time, in a tough environment that still exists for low-margin hardware companies. It develops servers and motherboards around Intel Corp.
INTC, -1.29%
and AMD Inc.
AMD, -2.29%
potato chips.
In the early days of the hype of cloud computing and data center, shares rallied, and in 2013 Supermicro bought the building and campus of the San Jose Mercury News, paying $ 30.5 million for the site, which was once the printing company of the newspaper. It trumpeted the news and said it was a milestone for the company. At the beginning of 2015, the shares reached a peak of $ 40.18.
But in the summer of 2016, Supermicro's stock got a hit after it told investors that it lost a number of server-store customers in the quarter. The following year, The Information reported that Apple was able to remove Supermicro servers from its data center due to a potential vulnerability in security in one data center.
Today, it appears that the company has fewer than five analysts on Wall Street who cover its stock. A few companies stopped the cover because the accounting issues persisted for months. In his August call with investors, in which the company only released estimated revenues for the fourth quarter, which ended in June, executives tried to explain the delays.
"The question you have to ask is: why does this take so long?" Said Bauer. "The answer is that in order to be thorough, we look at transactions at the end of each quarter for similar problems that we found in the previous tests, but especially when it comes to matching purchase order and shipping terms with the timing of sales. "He said that Supermicro offered" free shipping "to customers, only the free shipment was to indicate that customers could arrange for their own shipping company to pick up the products at its shipping dock, which had an unintended accounting consequence.
Regardless of whether the problems of Supermicro extend to an unknowing provider of servers with hidden Chinese spies or not, investors are worried about accounting misery. The report can cause further damage if customers become as nervous as investors.
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