Super Micro Earnings Reveal: Legal Risks Have 'Increased Materially', Mystery Customer & More

Zinger Key Points

Super Micro flagged ‘material weaknesses’ in financial controls, raising concerns about internal processes and reporting accuracy.
Legal risks ‘have increased materially,’ with lawsuits and a DoJ probe potentially leading to ‘future penalty payments.’
Every week, our Whisper Index uncovers five overlooked stocks with big breakout potential. Get the latest picks today before they gain traction.

Super Micro Computer Inc SMCI has finally filed its long-awaited annual report, and investors have plenty to digest. While the company is now in compliance with Nasdaq, the filing reveals several internal control issues, a significant customer shift, and mounting legal risks.

JPMorgan analyst Samik Chatterjee perused the details and maintained an ‘Underweight’ rating on the stock.

Internal Controls: A Work In Progress

The auditors flagged "material weaknesses relative to internal controls over financial reporting." Among the concerns: the company failed to "properly identify, design, or implement general IT controls," had "inadequately designed" controls for segregation of duties, and lacked "proper documentation" in several financial areas.

Super Micro's fix? The filing talks about bringing in more experienced personnel, enhancing IT systems, and ramping up training, notes Chatterjee. But with $18.6 million already spent addressing these deficiencies – and more costs expected – the road to remediation isn't cheap.

A New Big Customer Emerges

Super Micro's latest numbers hint at a major shift in customer concentration. While one major customer has been contributing to around 20% of the company’s revenue in 2024, another — referred to as customer G (name note revealed) — is expected to gain significance in 2025.

This mystery customer is expected to account for 12% revenue contribution in the first quarter and 31% in the second quarter of 2025 (surpassing the existing major customer’s contribution), according to the company’s filing.

The growing reliance on a few major buyers could be a game-changer for the company — whether for better or worse remains to be seen.

Inventory And Legal Risks Pile Up

Inventory levels have been fluctuating, with JPMorgan noting an expected drop from “$4.9 billion… to $3.6 billion” in the second quarter of 2025 according to the filing. Meanwhile, Super Micro recognized a "loss liability of $26.4 million" for unsold products already committed to.

On the legal front, things aren't looking great either. The company is facing multiple lawsuits, including allegations of “breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets," notes Chatterjee.

On top of that, there's an ongoing Department of Justice investigation, which JPMorgan warns could lead to financial penalties that Super Micro has yet to quantify.

Competitive Headwinds, ASP Risks

Export control regulations are another looming risk. New rules in January 2025 require "worldwide authorization for some of the company's advanced computing products." That means more red tape, competitive disadvantages, and uncertainty around international sales.

Adding to the pressure, Super Micro acknowledged that its "increasing ASPs for server solutions" have been a key growth driver but flagged "volatility in component prices" and risks of commoditization that could weigh on future pricing power, according to Chatterjee.

Between internal control issues, a shifting customer base, regulatory challenges, and legal headwinds, Super Micro's latest annual report is anything but conclusive.

With so many moving parts, investors will need to weigh whether the company's rapid growth can offset the risks outlined by JPMorgan's Chatterjee.

For now, caution seems to be the name of the game.

Read Next: