Tremendous Micro is going through a deadline to keep up its Nasdaq itemizing after an 85% plunge

Charles Liang, CEO of Super Micro Computer Inc., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024. The trade show runs through June 7.

Annabelle Chih | Bloomberg | Getty Images

Super microcomputer could be on track to be kicked off the Nasdaq as early as Monday.

That's the server company's potential fate if it doesn't come up with a viable plan to comply with Nasdaq regulations. Super Micro is late filing its 2024 year-end report with the SEC and has yet to replace its accounting firm. Many investors expected clarity from Super Micro when the company reported preliminary quarterly results last week. But they didn't understand.

The main part of this plan is how and when Super Micro will file its 2024 year-end report with the Securities and Exchange Commission and why it was late. Many expected this report to be filed alongside the company's fourth quarter results in June, but that was not the case.

The Nasdaq delisting process represents a crossroads for Super Micro, which is one of the main beneficiaries of the artificial intelligence boom due to its long-standing relationship with Nvidia and increasing demand for the chipmaker's graphics processors.

The former AI darling has faltered after a series of bad news. After Super Micro failed to file its annual report over the summer, activist short seller Hindenburg Research targeted the company in August, alleging accounting fraud and export control issues. The company's auditor, Ernst & Young, resigned in October, and Super Micro said last week that it was still trying to find a new one.

The stock is faltering. After rising more than 14-fold from late 2022 to their peak in March this year, shares have since plunged 85%. Super Micro's stock is now at May 2022 levels after falling another 11% on Thursday.

Next, delisting from the Nasdaq could happen if Super Micro fails to submit a compliance plan by Monday's deadline or if the exchange rejects the company's filing. Super Micro could also get an extension from Nasdaq, giving it months to come into compliance. The company said Thursday that it would submit a plan to Nasdaq in a timely manner.

A spokesperson told CNBC the company intends to “take all necessary steps to achieve compliance with Nasdaq's continuation listing requirements as quickly as possible.”

While the delisting issue primarily affects the stock, it could also damage Super Micro's reputation and reputation among its customers, who simply prefer to avoid the drama and choose AI servers from competitors such as. B. want to buy Dell or HPE.

“Given that Super Micro's accounting concerns have increased since the end of Super Micro's quarter, the company's weakness could ultimately benefit Dell more in the coming quarter,” Bernstein analyst Toni Sacconaghi wrote in a note this week.

A Nasdaq representative said the exchange does not comment on the delisting process for individual companies, but rules suggest the process could take about a year before a final decision is made.

A compliance plan

Nasdaq warned Super Micro on September 17 that the company was at risk of delisting. This gave the company 60 days to submit a compliance plan to the exchange, and since the deadline falls on a Sunday, the deadline for filing is Monday.

If Super Micro's plan is acceptable to Nasdaq employees, the company will be eligible for an extension of up to 180 days to file its annual report. Nasdaq wants to know whether Super Micro's board has investigated the company's accounting issue, what the exact reason for the late filing was, and a timeline for action taken by the board.

According to Nasdaq, several factors are considered when evaluating a compliance plan, including the reasons for the late filing, upcoming corporate events, the company's overall financial condition and the likelihood that a company will file an audited report within 180 days. The review may also consider information provided by external auditors, the SEC or other regulatory authorities.

Last week, Super Micro said it was doing everything in its power to remain listed on Nasdaq and said a special committee of its board had conducted the investigation and found no wrongdoing. Super Micro CEO Charles Liang said the company would receive the board committee report as early as last week. A company spokesperson did not respond to CNBC's question about whether this report had been received.

If Nasdaq rejects Super Micro's compliance plan, the company can request a hearing with the exchange's hearing board to review the decision. Super Micro will not be delisted immediately – the hearing panel's request results in a 15-day suspension of listing, and the panel may decide to extend the period by up to 180 days.

If the panel denies that request or Super Micro gets an extension and fails to file updated financials, the company can still appeal the decision to another Nasdaq panel called the Listing Council, which can grant an exception.

According to Nasdaq, the extensions are ultimately limited: 360 days from the due date of the company's first late filing.

A poor track record

There is one factor that could hurt Super Micro's chances of an extension. The exchange checks whether the company has violated SEC regulations in the past.

According to the SEC, between 2015 and 2017, Super Micro misstated financial information and delayed releasing important filings. It was delisted from Nasdaq in 2017 and relisted two years later.

Super Micro “may have a more difficult time obtaining extensions because Nasdaq literature suggests that when deciding whether an extension is warranted, they consider in part “the company's specific circumstances, including the company's past compliance history will,” Wedbush analyst Matt Bryson wrote in a note earlier this month. He rates the stock neutral.

The story also shows how long the delisting process can take.

Charles Liang, CEO of Super Micro Computer Inc., right, and Jensen Huang, co-founder and chief executive officer of Nvidia Corp., during the Computex conference in Taipei, Taiwan, on Wednesday, June 5, 2024.

Annabelle Chih | Bloomberg | Getty Images

Super Micro missed the June 2017 deadline for filing annual reports, received an extension until December, and ultimately received a hearing in May 2018 that allowed a further extension until August of the same year. Only when this deadline was missed was the share taken off the stock exchange.

In the short term, the bigger concern for Super Micro is whether customers and suppliers will start giving up.

Compliance issues aside, Super Micro is a fast-growing company that makes one of the most sought-after products in the technology industry. Unaudited financial reports show revenue more than doubled to nearly $15 billion last year, and the company has plenty of cash on its balance sheet, analysts say. According to FactSet, Wall Street expects even stronger revenue growth to about $25 billion in fiscal 2025.

Super Micro said last week that the filing delay “had some impact on orders.” In unaudited September quarter results released last week, the company posted slower growth than Wall Street expected. It also provided easy orientation.

The company said one reason for its weak results was that it had not yet received enough supplies of Nvidia's next-generation chip called Blackwell, raising questions about Super Micro's relationship with its key supplier.

“We don't think Super Micro's problems are a big deal for Nvidia, although in the short term it could shift some revenue from one quarter to the next as customers direct orders to Dell and others,” wrote Ben Reitzes, an analyst at Melius Research in a note this week.

Michael Staiger, head of corporate development at Super Micro, told investors in a call last week: “We have spoken to Nvidia and they have confirmed that they have not made any changes to the allocations. We maintain a close relationship with them.”

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