-
By definition, it's a hold within our portfolios. We have made excellent 'profit' which, being realised will be retained. The remaining holdings are modest. It's a very good business just poorly managed in my opinion. There is no doubt Mr Liang is an excellent engineer and he has built something very special but his management style appears incongruent with Western regulatory framework.
In saying that a manageable problem has ballooned into a critical issue which can be resolved IF he realises what the implications are. In my opinion that will require his exit as CEO.
-
Still going down, under $22 now, when do you think they’ll have some positive news?
-
I was just digging around for some SMCI info and came across this :
https://www.sec.gov/cgi-bin/own-disp?action=getissuer&CIK=0001375365
To me it looks like a lot of recent disposals by directors/officers ?
-
Insider stock sales have always been a source of debate. They are largely irrelevant. When Huang sold $800M in Nvidia stock 2 months ago it was a clear sell signal for the Bears and they make sure you heard about it. A director sells < 1% of his holding for some spare cash. Zuckerburg sold > $1B worth of Meta stock earlier this year-he did just buy two rather large yachts. Bezos, 3-4B.
The Liangs own 15% of the company. Vested option(stock) sales are pre planned and would have been approved many months ago. Maybe they need the money. It's irrelevant. As has been noted before, they sold very little when the stock was $120.
The facts are RSUs attract high taxation(even when unsold) so directors will often sell them to pay the taxes they are liable for whether they sell them or not. Huang has make many large pledges to various charities in the magnitude of 100's of millions so with taxes Im not surprised he needed to cash in some stock.
-
Still going down, under $22 now, when do you think they’ll have some positive news?
-
I'm waiting for the dip to bottom out and start climbing!
-
It's an interesting case study. We were lucky to realise a material profit and even a theoretical price of 'zero' would net 110%. From failing to file accounts on time to this. It appears a bargain today, right? Well, thinking about the implications.
No access to capital
Customers cancelling contracts
Banks calling in debt(potentially). All debt has covennants requiring a 10-k filing. No filing, you are in breach and the loan becomes callable.
Suppliers withdraw credit
Top quality staff leave-their options are worthless
Shareholder law suites(a big concern)
Real going concern implicationsIt is possible to resolve most of the above. Will they? They have not shown any signs of getting their act together, yet.
The first step is to appoint a new Auditor-a Big 4 Auditor. Most likely PWC. I'm guessing PWC. Before they agree, I would expect their review of the Audit Committee findings (ongoing still), request the CEO/CFO and most of the Board to resign. These imo are red lines. Will they go? Only then will they have a workable plan to convince nasdaq not to delist them. The delisting process is relatively drawn out and the company have two appeals which buys them time. It might take months to appoint new Auditors and get their accounts filed. During this time the rumour mill is driving the stock, more customers leave and banks get nervous.
-
I believe SMCI has taken many institutional investors by surprise, so no one should feel foolish for having invested in them. Around 20% of SMCI is owned by BlackRock and Vanguard !
That said, it's remarkable to see how SMCI is managing these challenges given the potentially serious consequences. -
They obtained a 1.5B loan at ZERO interest from a consortium of banks including JPM/Goldman, convertible to stock at $140. I would think they are less than happy about it too.
-
Hi G,
It's a rumour, but even if true it doesn't change anything. Filing a compliance plan was expected. They need to appoint new Auditors.
-
There is some chatter on Pistonheads about whether Nasdaq will accept 'the plan' or delist, today. There won't be any delistings today or any time soon.
- If a plan is submitted today the Nasdaq have 30 days to consider it. They can accept the plan they will be granted up to 180 days to comply.
- If they reject the plan, Nasdaq will issue a written statement with their reasons.
- The company has 7 calendar days to appeal. A hearing is then scheduled for between 30 and 45 days, where new information is presented.
- The company has a right of a second appeal and even after that they can appeal again, to Federal Court.
Cases of appeals that succeeded being Qualigen in 2021 and Evasion in 2024. In short filing the plan and appealing buys time. As has been said they must sign a new 'Big' audit firm, and in order to do that I would think the CEO/CFO and a few others need to resign.
-
Problem is, it' a red or black situation, gambling on the chance of a rise into profit or not.....
How lucky do you think you are?
-
Apparently they(smci) have a plan to announce on Monday to avoid delisting, should put a rocket under the sp, especially if they announce something positive to go with it.
-
Could have been a good gamble
-
I’m sure there will be further volatility but it’s the first positive news in a while. The reaction to signing BDO, a top 5 firm and auditors of much bigger companies, is as expected.
The committee took the view that retaining 3 shares for every 10 held originally was a reasonable and conservative approach given:
- We booked 138% profit
- On balance there was no evidence of accounting manipulation as cited even by EY.
- The rapid appreciation of the stock made them a short/miscreant target.
We don’t feel ‘smart’ and there are many take aways but one thing I can say. This holding was borne from a high degree of research and it received attention constantly. It still does. However this is a case of risk vs reward. This was a case of ‘Hold’ (modest residual balance) vs not a buy or a sell. Simply because there were too many unknowns whilst on balance the business is still very attractive.
Regards
Adam
