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General Category => Investment Ideas => Topic started by: DTEJD1997 on August 22, 2018, 06:19:54 PM

Title: SMCI - Super Micro
Post by: DTEJD1997 on August 22, 2018, 06:19:54 PM
Hey all:

Anybody else familiar/watching/invested in this company?

I used to own it years ago...I will use their products from time to time.  I find their product to be somewhat above average, but not great.  I find my customers are receptive to their product, but once again, not a top tier brand.

Fast forward to today.  The stock hit a new 52 week low $14.20/share.  This is because the company will not be able to file their annual report on time, and thus will be removed from NASDAQ.

The company has been around for a long time, and ships product.  I don't think it is a fraud, but it is troubling that this relatively simple business can't get their financials under control and out on time.

SMCI has also suffered from high DRAM prices.  They also have some amount of margin compression.

Countering this is a relatively healthy balance sheet and strong sales growth.

Analysts think the company could earn well over $2/share in the upcoming year.

Anybody have any thoughts/opinions on this?
Title: Re: SMCI Super Micro
Post by: clutch on August 22, 2018, 07:35:04 PM
Definitely not the best business/brand in the world... Doesn't seem to have much of a moat and it's in a commodity-type business.

But they got the industry headwinds for sure. I think the demand for servers, data storage, racks, HPC, etc. will continue to grow and grow... So just based on that factor it might be worth trading this name.
Title: Re: SMCI - Super Micro
Post by: VAL9000 on October 04, 2018, 05:39:38 AM

An alarming article covering Super Micro:
https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-china-used-a-tiny-chip-to-infiltrate-america-s-top-companies?srnd=businessweek-v2

Perhaps the next recession will be fomented by the painful and costly reorganization of the  global technology manufacturing supply chain.
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 04, 2018, 08:29:54 AM
People love the servers.  They are barebones, and dirt cheap.  Quality is somewhat suspect.

Their IPMI module is junk, as evidenced from the Bloomberg article.
Title: Re: SMCI - Super Micro
Post by: Spekulatius on October 04, 2018, 09:15:24 AM
So the company is toast now? The article is quite alarming since putting this kind of spy hardware into the servers requires coordination and collusion on so many levels.
1) design and produce a spy chip
2) Make it work on targeted motherboard without detection
3) inject the t into a manufacturing line undetected by quality control systems ( or make sure they collide with you).

It seems that this company must have design engineers in the US colluding with the Chinese.

I think all western companies need to rethink  about ITAR level security on their components as well. ITAR level work requires US persons only. Components even in military hardware are often not ITAR to save costs.

Then what about spy chips in smartphones also used by government officials? Yes we need to think about security much more bradly and possibly require hardware used by the government to be completely yuk in friendly countries. I could envision Apple to build a model of the iPhone this way. In the long run, revelations like this will cost the Chinese dearly, imo.
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 04, 2018, 09:45:19 AM
So the company is toast now? The article is quite alarming since putting this kind of spy hardware into the servers requires coordination and collusion on so many levels.
1) design and produce a spy chip
2) Make it work on targeted motherboard without detection
3) inject the t into a manufacturing line undetected by quality control systems ( or make sure they collide with you).

It seems that this company must have design engineers in the US colluding with the Chinese.

I think all western companies need to rethink  about ITAR level security on their components as well. ITAR level work requires US persons only. Components even in military hardware are often not ITAR to save costs.

Then what about spy chips in smartphones also used by government officials? Yes we need to think about security much more bradly and possibly require hardware used by the government to be completely yuk in friendly countries. I could envision Apple to build a model of the iPhone this way. In the long run, revelations like this will cost the Chinese dearly, imo.

Well, the chip took over the IPMI, then had it connect and download a bigger payload.

To expand on the earlier comment the IPMI is a super level chip that watches the system.  This is how you get lights out management.  There is system on a chip that is almost a second computer.  It will have a dedicated ethernet port and runs even if the server is turned off.  As long as they're power the IPMI/remote management is running.

This has a legitimate purpose. You can remote into any machine and view it as if you are there in person, but it doesn't rely on the computer's subsystem itself.  We do this with our servers (not SuperMicro).  If something goes terribly wrong you can always get to the machine.  The only time you need to physically visit a datacenter is for hardware upgrades.

SuperMicro's remote stuff was notoriously bad.  It's wide open to the world by default.  That means if you buy a SuperMicro and plug it in without firewalling off the ports ANYONE can take over the machine.  No talent is required.

Here's how I believe this works.  The little chip attacks a vulnerability in the remote management.  When the machine is powered on it dumps a payload the SoC stuff.  All you need are a few bytes.  It adds a phone home to a malicious cloud, and from there since a socket is established it can pull in a larger payload that's more complicated.

Think of it like this. That chip just needs to open the door, once the door is open the attacker has a vector they can use.

SuperMicro isn't alone.  This stuff is rampant.  Look on eBay at Intel x520 NIC's, probably 60-70% are counterfeit from China.  There is speculation that most of these are seeds.  The hardware looks slighly different, and you really don't know what they're doing.  The same is true with ethernet switches.  Again on eBay there are a lot in China that appear to be new, or slightly used that are dramatically cheaper.  The suspicion is that these are compromised components that they're tryign to get into foreign networks.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 05, 2018, 07:23:00 AM
@ $13 per share I think the market cap here is somewhere around $640 million. For $640 million you are buying:

$22 million in net debt (94 million cash - 116 million debt).

Based on the 6/30/17 balance sheet the company is close to being a net-net. Assuming no inventory write-offs, it probably is a net-net at this point given the growth that they showed last fiscal year.

FY 2018 results (ended 6/30/2018): $3.3 billion in revenue, at least $428 million in gross profit, and a minimum of $1 per diluted share GAAP earnings.

2 million sq feet of real estate in San Jose, CA + a manufacturing facility in Taiwan.

Obviously this is a speculative situation (do you own due diligence!), but I think a case can be made for buying this here.
Title: Re: SMCI - Super Micro
Post by: LongHaul on October 05, 2018, 07:36:11 AM
I guess now we know why they are called SUPERMICRO!

Title: Re: SMCI - Super Micro
Post by: mcliu on October 05, 2018, 07:49:10 AM
Will customer still use their products after this Bloomberg piece?
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 05, 2018, 08:41:30 AM
Will customer still use their products after this Bloomberg piece?

That's the risk I see, reputational risk.  If it's a net-net now imagine where it will be after a few quarters of low growth?
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 05, 2018, 08:54:32 AM
Will customer still use their products after this Bloomberg piece?

That's the risk I see, reputational risk.  If it's a net-net now imagine where it will be after a few quarters of low growth?

Hopefully higher? The (implicit) point I was trying to make is that the balance sheet (both current assets and real estate) supports the current valuation. You don't need growth here to win. All you need is for them to get their financials current to help prove to the market that this isn't a big fat fraud.







Title: Re: SMCI - Super Micro
Post by: benhacker on October 05, 2018, 10:41:52 AM
Do you think they have any liability for this issue?
Title: Re: SMCI - Super Micro
Post by: given2invest on October 05, 2018, 11:43:06 AM
Don't forget there are still no financials!  This thing was already hairy before this article.  Now it's the hairiest of hairy! 

But yah it's intriguing.  But I'm not buying.
Title: Re: SMCI - Super Micro
Post by: Spekulatius on October 05, 2018, 12:48:39 PM
No inventory write off seems to me a big assumption considering that they have produced components with a hardware Trojan horse in it.At the very least they. Would need to buff up their supply chain supervision, thoroughly inspect and test all their existing WIP and purge whatever is suspect.
Then there are e siting customers who demand that they take their already sold product back. The latter could easily make this a zero alone. Then we have lawsuits from customers, pot. criminal lawsuits from the government, class action lawsuits etc...It seems to me that a net net may not be good enough under these circumstances.
Title: Re: SMCI - Super Micro
Post by: bizaro86 on October 05, 2018, 02:14:10 PM
If someone offered you the chance to buy all of Super Micro's inventory what would you pay for it? I personally wouldn't be willing to pay anything near cost for it.

Whether individual pieces are infected or not may not even matter. Who is going to recommend the purchase of that hardware to their boss now? Seem like it would be a lot of career risk for an IT buyer...
Title: Re: SMCI - Super Micro
Post by: rb on October 05, 2018, 03:42:51 PM
A net net is only useful is you can flip a switch, shut the company down, monetize the assets. If the company continues to operate and losses mount that net/net advantage can quickly evaporate.

This is a company with a founder/shareholder in control. It's not a situation where the guy will go.... well it was fun while it lasted. Let's close her up, take the money and be merry.

There will be consequences from this for the company. The only reason why these guys have business it's because they're cheap. But it's also a commodity business. Which means that their competitors, while more expensive, won't be that expensive. So it won't cost so much to leave them. To a company risking reputational damage, leaving them is almost instinctive, a no thought decision. Notice how Nate mentioned in his post that they don't use SuperMicro?

I guess the extent of the damage will depend on the makeup of SuperMicro's customer base. For example, in the case of a porn company, they probably don't care much if Chinese Intelligence also gets a peek. So they'll keep going for the cheap servers (I imagine a discount will be forthcoming as well). But other types of clients will care very much. But there will be damage. This is also happening to a company that got delisted because it couldn't produce financials for their relatively simple business. Very hairy indeed.
Title: Re: SMCI - Super Micro
Post by: writser on October 06, 2018, 02:56:20 AM
Very intriguing story. As others pointed out, a perceived margin of safety in net asset value is probably not worth a lot in this case. If the allegations are true, the inventory requires a huge haircut and receivables will be disputed.

I'm inclined to think the market is overreacting. I mean, "Chinese spies are taking over all our computers" is basically a headline handcrafted to totally freak out US investors .. Decent chance this was done at one of their suppliers without their knowledge, that the chip only has very limited capabilities and/or can be worked around, that this hack affects only a limited percentage of their products and that in a year or two everybody has forgotten this. In that case this looks cheap now. However, I have absolutely no facts to justify my opinion and on the other hand, it could also be true that this company has severe security issues and that sales will drop off a cliff (they will drop in any case). And it's not like the company was perfect before the bomb dropped. All in all: probably too difficult for me. But I will follow it for popcorn value.
Title: Re: SMCI - Super Micro
Post by: hillfronter83 on October 06, 2018, 08:43:28 AM
https://www.buzzfeednews.com/article/johnpaczkowski/apple-china-hacking-bloomberg-servers-spies-fbi

This is getting more interesting.
Title: Re: SMCI - Super Micro
Post by: Spekulatius on October 06, 2018, 01:33:51 PM
https://www.buzzfeednews.com/article/johnpaczkowski/apple-china-hacking-bloomberg-servers-spies-fbi

This is getting more interesting.

I mentioned it before, but if this Trojan horse motherboard exists, some of the hardware should show up and  should get dissected by hardware nerds in the next few weeks. If the hardware doesn’t show up, the scope if this was either very limited or the entire thing a hoax.
Title: Re: SMCI - Super Micro
Post by: given2invest on October 06, 2018, 02:33:29 PM
It's the size of a grain of rice in a $100,000+ device.  Probably hard to find! 

The story is fascinating.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 06, 2018, 05:46:31 PM
A net net is only useful is you can flip a switch, shut the company down, monetize the assets. If the company continues to operate and losses mount that net/net advantage can quickly evaporate.

This is a company with a founder/shareholder in control. It's not a situation where the guy will go.... well it was fun while it lasted. Let's close her up, take the money and be merry.

There will be consequences from this for the company. The only reason why these guys have business it's because they're cheap. But it's also a commodity business. Which means that their competitors, while more expensive, won't be that expensive. So it won't cost so much to leave them. To a company risking reputational damage, leaving them is almost instinctive, a no thought decision. Notice how Nate mentioned in his post that they don't use SuperMicro?

I guess the extent of the damage will depend on the makeup of SuperMicro's customer base. For example, in the case of a porn company, they probably don't care much if Chinese Intelligence also gets a peek. So they'll keep going for the cheap servers (I imagine a discount will be forthcoming as well). But other types of clients will care very much. But there will be damage. This is also happening to a company that got delisted because it couldn't produce financials for their relatively simple business. Very hairy indeed.

I'm impressed that you managed to slip the words "porn" and "very hairy" into the same paragraph. You sir, are a sly one!

On net-nets generally, I think they are worth paying attention to because they are the cheapest of the cheap, not because (in most cases anyways) they are likely to liquidate. I can seen how my earlier post could be easily misinterpreted.

In the present case, my point about the company possibly being a net-net at the current price was to point out just how little credit the market is giving it as a viable enterprise - despite its track record of success. I would be very surprised if management moved to liquidate the company.

I mentioned it before, but if this Trojan horse motherboard exists, some of the hardware should show up and  should get dissected by hardware nerds in the next few weeks. If the hardware doesn’t show up, the scope if this was either very limited or the entire thing a hoax.

This is a really smart thought.


If someone offered you the chance to buy all of Super Micro's inventory what would you pay for it? I personally wouldn't be willing to pay anything near cost for it.

Whether individual pieces are infected or not may not even matter. Who is going to recommend the purchase of that hardware to their boss now? Seem like it would be a lot of career risk for an IT buyer...

OK, you think their inventory is likely worth less than it is likely* marked at. That's definitely a valid position. I think sales could decline + they could take an inventory haircut and, despite all that, investors could still do well here if they get their financials up-to-date and continue to sanely operate the core business.

* I say likely since we don't have an up-to-date balance sheet


Title: Re: SMCI - Super Micro
Post by: writser on October 08, 2018, 02:38:58 AM
Interesting, skeptical article on the whole affair: https://www.theregister.co.uk/2018/10/04/supermicro_bloomberg/ (warning: nerd stuff). Some snippets:

Quote

[..]

A fourth thing is this: why go to the bother of smuggling another chip on the board, when a chip already due to be placed in the circuitry could be tampered with during manufacture, using bribes and pressure? Why not switch the SPI flash chip with a backdoored one – one that looks identical to a legit one? Perhaps the disguised signal coupler was the best way to go.

And a fifth thing: the chip allegedly fits on a pencil tip. That it can intercept and rewrite data on the fly from SPI flash or a serial EEPROM is not impossible. However, it has to contain enough data to replace the fetched BMC firmware code, that then alters the running operating system or otherwise implements a viable backdoor. Either the chip pictured in Bloomberg's article is incorrect and just an illustration, and the actual device is larger, or there is state-of-the-art custom semiconductor fabrication involved here.

One final point: you would expect corporations like Apple and Amazon to have in place systems that detect not only unexpected network traffic, but also unexpected operating system states. It should be possible that alterations to the kernel and the stack of software above it should set off alarms during or after boot.

[..]


You could be forgiven for believing Bloomberg's story in its entirely and discounting Amazon, Apple and Super Micro's denials for trying to cover their backs while refusing to acknowledge understandably confidential national security investigations.

Except the denials are far more precise and concrete than typical non-denial denials. It remains very unlikely that public companies would issue outright falsehoods, even in the current political climate, due to the market and regulatory ramifications if they were found to be outright lying to investors. Usually, assessing whether a company is telling the truth comprises of carefully parsing statements and seeing what aspects of a story they don't address.


Regarding Apple denial:

Quote
But it also makes a strong denial that deserves attention: "On this we can be very clear: Apple has never found malicious chips, 'hardware manipulations' or vulnerabilities purposely planted in any server. Apple never had any contact with the FBI or any other agency about such an incident. We are not aware of any investigation by the FBI, nor are our contacts in law enforcement."

Whichever way you parse that, it remains a strong denial. If it turns out the Bloomberg report is true, it would be hard to paint that sentence as anything but a lie.

It is also worth noting that neither Amazon nor Apple went for the usual "we do not discuss any national security or law enforcement issues as a matter of policy" – which is the most common tacit way of acknowledging something happened without saying what.

I wouldn't be surprised if the whole story turns out to be exaggerated. Though even if it is, it can still have a horrible effect on SMCI's sales.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 08, 2018, 06:54:44 AM
Stock bouncing this morning on news that the Department of Homeland Security "has no reason to question" the tech companies' denials.

https://www.bloomberg.com/news/articles/2018-10-07/dhs-backs-u-s-tech-companies-denying-china-hacked-their-systems?utm_source=google (https://www.bloomberg.com/news/articles/2018-10-07/dhs-backs-u-s-tech-companies-denying-china-hacked-their-systems?utm_source=google)

Title: Re: SMCI - Super Micro
Post by: writser on October 08, 2018, 06:55:30 AM
As another user pointed out in the Amazon thread, the DHS has now also issued a statement: "we have no reason to doubt the statements from the companies named in the story", i.e. Apple, Amazon & Super Micro. Either is is a technological infiltration of unprecedented scale followed a by deep state cover-up or the Bloomberg article was somewhat sensational. I'm betting on the latter. Extraordinary claims require extraordinary evidence. To put my money where my mouth is I bought a few hundred shares. Shares are already up ~50% from the bottom but still down 33% from before the article. Wouldn't surprise me if this trades a few dollars higher in a few weeks.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 08, 2018, 10:34:26 AM
Apple has released a letter it sent to members of Congress today:

https://www.scribd.com/document/390316327/Letter?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top (https://www.scribd.com/document/390316327/Letter?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosam&stream=top)

Also, here's a good Twitter thread with opinions from computer security professionals:

https://twitter.com/taviso/status/1048931456599220225 (https://twitter.com/taviso/status/1048931456599220225)
Title: Re: SMCI - Super Micro
Post by: pcm983 on October 08, 2018, 07:48:55 PM
Seems like a long here. Also potential lawsuit against bberg.

https://risky.biz/RB517_feature/
Title: Re: SMCI - Super Micro
Post by: atbed on October 09, 2018, 09:57:44 AM
https://www.bloomberg.com/news/articles/2018-10-09/new-evidence-of-hacked-supermicro-hardware-found-in-u-s-telecom?srnd=premium
Title: Re: SMCI - Super Micro
Post by: hillfronter83 on October 10, 2018, 03:04:25 AM
https://www.bloomberg.com/news/articles/2018-10-09/new-evidence-of-hacked-supermicro-hardware-found-in-u-s-telecom?srnd=premium

https://twitter.com/marcan42/status/1049687546945392640?s=21

“Bloomberg's technically clueless journalists” is what i thought.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 10, 2018, 10:38:31 AM
Was feeling pretty smug yesterday until I realized that Bloomberg had publisher another "spy chip" article, which (again) crashed the stock.   :P

Nibbled a little more @ $12.15 yesterday, only to sell that nibble today @ $12.85. Still hold the bulk of my position.

As hilfronter83 pointed out, several hardware security professionals on Twitter are quite skeptical about many of the substantive claims made in the Bloomberg articles. I don't have the technical expertise to have a much of an opinion, but do think it's odd that no picture of a spy chip has surfaced.




Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 10, 2018, 10:49:21 AM
Was feeling pretty smug yesterday until I realized that Bloomberg had publisher another "spy chip" article, which (again) crashed the stock.   :P

Nibbled a little more @ $12.15 yesterday, only to sell that nibble today @ $12.85. Still hold the bulk of my position.

As hilfronter83 pointed out, several hardware security professionals on Twitter are quite skeptical about many of the substantive claims made in the Bloomberg articles. I don't have the technical expertise to have a much of an opinion, but do think it's odd that no picture of a spy chip has surfaced.

Why would it be odd?  How does a picture do much?  It's a small thing that looks like a capacitor.  My guess is if someone posted a picture people would still say "but it just looks like a chip, we don't know it's real."

I don't know if this exact story is real, but the NSA has chips and spies with this sort of hardware.  Technically the functionality exists, that's not a stretch.

I remember back in 2000/2001 on the underground of the internet there was a lot of rumbling about the NSA being able to tap lines and record all traffic.  It was a rumor, there were some data points, but it was all rumor level.  Very similar to this.  Then suddenly Snowden released his cache and validated those claims.  More than ten years later those rumors were proved to be very accurate.

This story has a lot of similarities.  It's plausible, we know the US does it, so why wouldn't China, and there are weird rumors.  Apple started to build their own servers in 2015 to avoid hardware security issues.  Then Apple cut off SuperMicro in 2017.  I mean it could all be coincidence, or it could be accurate.

As to this having an impact? I'd suggest reading some of the SysAdmin reddits or forums.  There is skepticism on all levels.  I've seen a lot of "to be safe we're just going to go with someone else" type posts.  I don't know if that trickles down into future earnings or what.

I love net-nets and I love depressed stocks.  But you don't buy as the knife is falling.  You wait until they've had three or four bad quarters, they've cleaned things up, and the market still doesn't care.  That's when you buy.  If I miss out, then oh well.  But buying here seems really risky verses waiting for things to settle some.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 10, 2018, 11:22:26 AM
Was feeling pretty smug yesterday until I realized that Bloomberg had publisher another "spy chip" article, which (again) crashed the stock.   :P

Nibbled a little more @ $12.15 yesterday, only to sell that nibble today @ $12.85. Still hold the bulk of my position.

As hilfronter83 pointed out, several hardware security professionals on Twitter are quite skeptical about many of the substantive claims made in the Bloomberg articles. I don't have the technical expertise to have a much of an opinion, but do think it's odd that no picture of a spy chip has surfaced.

Why would it be odd?  How does a picture do much?  It's a small thing that looks like a capacitor.  My guess is if someone posted a picture people would still say "but it just looks like a chip, we don't know it's real."

I don't know if this exact story is real, but the NSA has chips and spies with this sort of hardware.  Technically the functionality exists, that's not a stretch.

I remember back in 2000/2001 on the underground of the internet there was a lot of rumbling about the NSA being able to tap lines and record all traffic.  It was a rumor, there were some data points, but it was all rumor level.  Very similar to this.  Then suddenly Snowden released his cache and validated those claims.  More than ten years later those rumors were proved to be very accurate.

This story has a lot of similarities.  It's plausible, we know the US does it, so why wouldn't China, and there are weird rumors.  Apple started to build their own servers in 2015 to avoid hardware security issues.  Then Apple cut off SuperMicro in 2017.  I mean it could all be coincidence, or it could be accurate.

As to this having an impact? I'd suggest reading some of the SysAdmin reddits or forums.  There is skepticism on all levels.  I've seen a lot of "to be safe we're just going to go with someone else" type posts.  I don't know if that trickles down into future earnings or what.

I love net-nets and I love depressed stocks.  But you don't buy as the knife is falling.  You wait until they've had three or four bad quarters, they've cleaned things up, and the market still doesn't care.  That's when you buy.  If I miss out, then oh well.  But buying here seems really risky verses waiting for things to settle some.

I'm more of a "buy when there's blood in the streets" investor. I don't pay attention to technical factors "falling knife, etc) whatsoever. Instead, I'm looking to get the best entry price possible.

Some of my best investments have been situations where investors are indiscriminately selling because of massive uncertainty. Why? Probably because value is most likely to be found in situations where investors are selling first and asking questions later.
Title: Re: SMCI - Super Micro
Post by: Liberty on October 17, 2018, 08:38:50 AM
The last part of this podcast (the last 20 mins? Not sure, just estimating, I didn't look at the timer) talk about the supposed chinese hack at supermicro:

https://daringfireball.net/thetalkshow/2018/10/16/ep-231

Their theory is the one that sounds most plausible to me. It's a bogus story, probably created by government people as a psyops operation to tilt public opinion in the trade war with China.

Otherwise, a lot of the technical things in the story are fishy, and the fact that with thousands of boards out there no security expert has yet come out with proof seems very suspicious.

Of course it doesn't mean that there isn't all kinds of spying going on, but this specific story seems bogus.

But it's just a theory, since it's hard to prove a negative...
Title: Re: SMCI - Super Micro
Post by: Spekulatius on October 17, 2018, 08:52:00 AM
Impossible to prove a negative of course, but if these motherboards with Trojan horse hardware existed in any quantity, they would have shown up already, now that people look more closely. Plus there are reports that state that the Super Micro boards are so crappy, that they could easily be hacked with laced software and there isn’t even a need for a hardware Trojan horse.
Title: Re: SMCI - Super Micro
Post by: given2invest on October 17, 2018, 09:57:32 AM
Impossible to prove a negative of course, but if these motherboards with Trojan horse hardware existed in any quantity, they would have shown up already, now that people look more closely. Plus there are reports that state that the Super Micro boards are so crappy, that they could easily be hacked with laced software and there isn’t even a need for a hardware Trojan horse.

lol is that a bull case?  their products are shit?   haha
Title: Re: SMCI - Super Micro
Post by: Liberty on October 17, 2018, 10:07:17 AM
Impossible to prove a negative of course, but if these motherboards with Trojan horse hardware existed in any quantity, they would have shown up already, now that people look more closely. Plus there are reports that state that the Super Micro boards are so crappy, that they could easily be hacked with laced software and there isn’t even a need for a hardware Trojan horse.

lol is that a bull case?  their products are shit?   haha

It's only funny because it's sad: Everybody's products are shit. How many bug patches and security vulnerabilities are all of the big software and hardware vendors constantly patching with OS/app/firmware updates?

I don't know if Supermicro's worse than anyone else, I haven't followed them except for the alleged hack story, but I know that security is extremely hard, especially if it's not designed from the ground up and part of the culture at the manufacturer (which is why Apple does pretty well -- they've made it a priority for a long time).
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 17, 2018, 11:12:38 AM

lol is that a bull case?  their products are shit?   haha

It's only funny because it's sad: Everybody's products are shit. How many bug patches and security vulnerabilities are all of the big software and hardware vendors constantly patching with OS/app/firmware updates?

I don't know if Supermicro's worse than anyone else, I haven't followed them except for the alleged hack story, but I know that security is extremely hard, especially if it's not designed from the ground up and part of the culture at the manufacturer (which is why Apple does pretty well -- they've made it a priority for a long time).

Their products are worse.  When you buy enterprise hardware you expect it to last a LONG time with intensive use.  For example, a Samsung SSD can handle about 400TBW, terrabytes written.  Once you write 400TB the NAND wears out and you need a new drive.  For most users this amount of data is inconceivable.

Take an Intel SSD, the average ones can handle 1 drive write per day, so 1TBW per day, or 2PB (petabytes) written over five years, that's 5x longer.  That's the low end, their write intensive units can handle 10 drive writes per day, so 10TBW a day or 18PBW in five years, 45x longer.

Intel guarantees their flash, it's warrantied, and if you don't hit these metrics you can RMA the devices. That is an example of enterprise reliability and engineering. Gear like Cisco, HPE, Dell (some), Juniper, Arista are in this category. The stuff just runs, it runs forever and keeps running.  The manufacturers stand by their products and have insane warranties.  I have some four hour response warranties on some Cisco gear.  This means that a Cisco engineer will be at the server in person replacing parts (at no charge to me) within four hours no matter what time or day of the week.

When people mention Super Micro it's always coupled with "it's cheap" and it's so cheap the recommendation is to buy two of everything.  This is so when the first one fails you have a ready replacement.  In most cases two servers are cheaper than some of the name brand servers above.  The catch is your people are the ones out of bed on Christmas Eve swapping servers.

Is there a place for this? Sure. Just like people get away with using Samsung SSD's in enterprise environments.  If your workload isn't as intense and you have extras on hand then buying cheap makes sense.

There are a LOT of small businesses out there where IT is a cost center starving for funds. These guys will buy Super Micro and deal with the quality because that's all they can get. These are the same companies that are on Windows XP or Server 2008.

They're the ultimate white box supplier.

Search reddit/r/sysadmin for Super Micro.  First two hits:
https://www.reddit.com/r/sysadmin/comments/85jwmc/supermicro_vs_dell_servers_debate/
https://www.reddit.com/r/sysadmin/comments/9hyy9i/why_supermicro_server_is_so_cheap/

People are recommending that Super Micro is good if when a server has an issue you can just throw it away and replace it with another.  One guy claims "for a lab environment they're better than nothing."  :o

There are thread after thread like this.  People pleading with others to buy anything but SM unless they can afford rooms full and don't care about reliability, or they don't have a budget.

I'm not trying to slam them. I've been looking at this from the investment angle too.

There's a second trend that I've noticed that I never appreciated.  Super Micro really benefitted from the inexpensive array of cheap compute notes theory of data centers.  This is what Google pioneered, a ton of cheap commodity machines you throw away as they die.  But with virtualization we've moved to extremely reliable overbuilt hosts for VM's.  AWS is selling virtualization on big machines, a lot of them. The theory is now you have a number of VM's spread across a few nodes orchestrated by Kubernetes.
Title: Re: SMCI - Super Micro
Post by: Spekulatius on October 17, 2018, 12:38:10 PM
Impossible to prove a negative of course, but if these motherboards with Trojan horse hardware existed in any quantity, they would have shown up already, now that people look more closely. Plus there are reports that state that the Super Micro boards are so crappy, that they could easily be hacked with laced software and there isn’t even a need for a hardware Trojan horse.

lol is that a bull case?  their products are shit?   haha

In a roundabout way, the answer is yes. 🤪
Title: Re: SMCI - Super Micro
Post by: writser on October 17, 2018, 12:46:58 PM
There's a second trend that I've noticed that I never appreciated.  Super Micro really benefitted from the inexpensive array of cheap compute notes theory of data centers.  This is what Google pioneered, a ton of cheap commodity machines you throw away as they die. But with virtualization we've moved to extremely reliable overbuilt hosts for VM's.

I highly doubt that. What's your source for this? Software eats the world. Eventually everything will run on commoditized hardware because at large scales it will always be cheaper to implement redundancy in software than in hardware. Google / Amazon / Apple / Microsoft aren't going to deploy millions of (expensive) extremely reliable overbuilt hosts to minimize the chance that one of their computers will crash at some point. And small fish aren't going to deploy these servers because it's cheaper to rent capacity from one of the bigger players.
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 18, 2018, 05:52:44 AM
There's a second trend that I've noticed that I never appreciated.  Super Micro really benefitted from the inexpensive array of cheap compute notes theory of data centers.  This is what Google pioneered, a ton of cheap commodity machines you throw away as they die. But with virtualization we've moved to extremely reliable overbuilt hosts for VM's.

I highly doubt that. What's your source for this? Software eats the world. Eventually everything will run on commoditized hardware because at large scales it will always be cheaper to implement redundancy in software than in hardware. Google / Amazon / Apple / Microsoft aren't going to deploy millions of (expensive) extremely reliable overbuilt hosts to minimize the chance that one of their computers will crash at some point. And small fish aren't going to deploy these servers because it's cheaper to rent capacity from one of the bigger players.

Call any manufacturer and ask for a quote on a virtualization box. Plus hanging around the industry.

But just think this through. Virtualization sells threads/cores, ram and disk space.  It is more cost efficient to take a server from 10 cores to 20 cores and double the sticks of ram.  In a data center you pay for every amp of electricity you use. The marginal cost of more cpu cores and ram is very small compared to an entirely new machine.

A few things changed that made this shift possible.  Hyperconverged ethernet adapters. A host can have a 10/25/40Gbe ethernet adapter that's divided up into hundreds of small adapters for each host. Second is core density. In 2010 Xeon's had four or six cores.  You can buy a Xeon Platinum with 28 cores now, and in a dual NUMA machine that 56 cores or 112 threads for hosts.  Xeon's can support 1.5TB of ram, all in a single pizza box 1U.

A cloud provider then uses something like OpenStack and spins up hundreds of VM's across a small handful of machines. 

Effectively what happened is machines got quicker faster than applications could keep up.

In terms of Amazon/Azure being cheaper, that's completely false. It's 100% cheaper to buy and run your own servers all of the time.  I pay $500/mo for my half rack, the effective cost would be $20k/mo on AWS.  I have a friend who runs IT at a large company, they're moving to AWS.  He said "We know it's a lot more expensive, but it's easier than hiring, we can't hire good IT people. And the cost is opex vs capex."

I know another large company that's moving to the cloud, cost is irrelevant, it's because "IT is too slow, and we want to move quicker."  That's a theme.  My business partner has worked with a handful of Fortune 500 companies that he helped move to the cloud, the reason was the same.  Never cost, it's cheaper to buy and support your own, but it's easier to get around IT.  Execs love the idea of a recurring cost monthly vs a big budget spend one year, and then three years of nothing before IT's asking for an upgrade.

If you aren't convinced I'd say work out the math.  I have tossed around the idea of cloud hosting, the numbers are insanely lucrative.  The only way to do it is density, thread/core/disk.  Disk density is easy, you can buy a few Nimble's and plug everything into them. 

The way you thread this all together is with OpenStack and software defined networking.  You create pools of VM's that can migrate between two or three hosts.  This gives you the reliability.  The whole concept is built with automation in mind.  You can change routes, vlans, anything in the switch with a script.  These scripts can spin up and move VM's.  It's all automated and hands off.

There are some awesome YouTube videos out there from Facebook and AWS explaining how they build out data centers.  This is exactly it, extremely dense, and automated.  To get the density they're using quality enterprise gear, not cheap off the shelf stuff.  It's commodity in the sense they've moved from customized and expensive blades to 1U, but it isn't the off the shelf ATX motherboards that Google does that you're probably thinking of.

The lr;dr; of this is consider: 10 machines virtualized might move to a single hypervisor. The entire point of virtualization is less machines needed because VM's can share resources.  In the past what was 10 cheap servers are now on a single not as cheap dense server.  Look at some of the stuff where there are two or four nodes in a single server now.  It's all about density, not rooms of cheap single purpose pizza boxes.
Title: Re: SMCI - Super Micro
Post by: writser on October 18, 2018, 06:26:24 AM
Thanks for the reply. So it is your take that SMCI motherboards are too unreliable to be used in such setups? That's what I am doubting and that narrative also doesn't seem to match with SMCI revenue over the past few years. But I could very well be mistaken.
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 18, 2018, 07:02:15 AM
Thanks for the reply. So it is your take that SMCI motherboards are too unreliable to be used in such setups? That's what I am doubting and that narrative also doesn't seem to match with SMCI revenue over the past few years. But I could very well be mistaken.

There is one reason people go SMCI -> price. Tech is very much a "get what you pay for" world. Pay more, higher quality components. Higher quality could mean better capaciters, better resistors, better chips. Or more thought out design.

You can get 'nice' things at reasonable prices. Flash storage arrays etc. So an IT group will look and say "we can get all-flash from SMCI, or spinning disks from HPE for the same price.  Flash is better and we'll just suck up the lack of support and reliability on our own."  The psychology is the people ordering this stuff want the nicest they can get and budgets are squeezed.

There will always be a market for Kia cars, just like SMCI. A buyer of a Kia knows what they're getting, and I think the analogy holds for SMCI too.
Title: Re: SMCI - Super Micro
Post by: pcm983 on October 19, 2018, 08:06:07 AM
any thoughts now that we have gotten a bunch more rejections? surprised stock hasn't reacted more here.

https://www.computing.co.uk/ctg/news/3064829/no-evidence-of-chinese-state-attack-on-it-hardware-supply-chain-says-us-director-of-national-intelligence-dan-coats

supposedly earnings next week too - i have the stock trading at mid single digit p/e on ltm earnings.

also any thoughts on timing of accounting restatement?

Title: Re: SMCI - Super Micro
Post by: pcm983 on October 19, 2018, 10:46:50 AM
Apple CEO Tim Cook, in an interview with BuzzFeed News, went on the record for the first time to deny allegations that his company was the victim of a hardware-based attack carried out by the Chinese government. And, in an unprecedented move for the company, he called for a retraction of the story that made this claim.

https://www.buzzfeednews.com/article/johnpaczkowski/apple-tim-cook-bloomberg-retraction
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on October 19, 2018, 12:59:08 PM
any thoughts now that we have gotten a bunch more rejections? surprised stock hasn't reacted more here.

https://www.computing.co.uk/ctg/news/3064829/no-evidence-of-chinese-state-attack-on-it-hardware-supply-chain-says-us-director-of-national-intelligence-dan-coats

supposedly earnings next week too - i have the stock trading at mid single digit p/e on ltm earnings.

also any thoughts on timing of accounting restatement?

Thanks for posting today's news.

Insofar as the accounting restatement goes, the company has been consistently mum about when it might be completed. Obviously it's been a slow process.
Title: Re: SMCI - Super Micro
Post by: pcm983 on October 22, 2018, 11:21:44 AM
https://www.cnbc.com/2018/10/22/aws-ceo-jassy-follows-apple-calls-for-spy-chip-story-retraction.html

Title: Re: SMCI - Super Micro
Post by: writser on October 24, 2018, 02:55:00 AM
I still think the whole 'spy chip' story is incredibly far-fetched:

- everybody is denying it and even calling for retraction. FBI, DHS, Amazon, Apple, etc.
- weeks have passed and there's still no evidence so far. The chip should have been found by now by random nerds on the internet. No concrete follow-ups from Bloomberg either.
- it would be an incredibly convoluted, expensive, unsure and risky way for the Chinese government to gain access to .... to what actually?
- I think it's actually a very stupid way to 'hack' because, once the secret has been spilled, it would immediately give away who is doing it and would be very easy to detect / circumvent.

It doesn't make sense on so many levels. I think it's way more likely the Bloomberg article is overblown / incorrect, even if that in itself is highly unlikely.

Yet the story is so powerful, has the perfect villain to scare US investors and has such a big impact if true that the market seems to assign way too much value to it. The only question is: what is the upside? I'm not sure how to value the company (which is why I only have a very small position and why I probably shouldn't own it in the first place). Book value doesn't seem to be the most useful approach but I also have a hard time predicting future earnings / cashflow. I'm basically in it for the spy chip drama, not for the 'hope they get-up-to-date-with-financials-and-have-good-results-in-2019' drama. Also, regarding upside: SMCI was already trading below $17 in May this year - before any of this happened .. And regardless of whether the spy chip exists or not, surely this story can't be good for business. So I don't mind selling opportunistically - I could be completely wrong about the spy chip as well. At what level I'm not quite sure yet.

After the storm has blown over Nate can buy my shares and make the easy money.
Title: Re: SMCI - Super Micro
Post by: Liberty on October 24, 2018, 06:31:53 AM
Not to mention that there's been enough time for other journalists and security researchers to look for those chips and they would've found them by now. I saw somewhere (forget where..) that the WaPo and NYT both trying to corroborate the story but got nowhere. I also think that it would be a good way for a security consulting firm to make a name and get lots of PR if they came out with more details on the chip or confirmed it, yet I haven't seen anything yet. In fact, security experts interviewed by Bloomberg for background research on the story seem skeptical because lots of speculative things he said were claimed by the story as exactly what the supposed chip did.
Title: Re: SMCI - Super Micro
Post by: oddballstocks on October 24, 2018, 07:06:39 AM
After the storm has blown over Nate can buy my shares and make the easy money.

Ha!!

The story is weird. It's very possible it's true. And I say this from what I'd seen 15 years ago when I worked at a startup that focused on security. We hired hackers, found exploits, were paid to break into networks, and then managed said networks. Some of the hardware devices back then were almost unbelievable.  So on that front I can see this.

But there are other threads to the story that don't make sense. Given SuperMicro's history, why go to all the lengths when the core boards are already vulnerable? I mean it's like a spy movie where there is some super secret plan to break into a building with ladders, ropes, secret gadgets when in the end the front door is wide open, not just unlocked, but wide open with no one home.

I know I've railed on the quality, but there is a place for that.  There is a huge market for low end machines by budget conscious companies.

I guess the question is what does the restatement bring, and will it drift cheaper?
Title: Re: SMCI - Super Micro
Post by: writser on October 26, 2018, 11:28:56 AM
https://apple.slashdot.org/story/18/10/26/1719225/amazon-has-pulled-ads-from-bloomberg-over-controversial-big-hack-chinese-spy-story-apple-has-not-invited-outlets-reporters-to-a-product-event-next-week

Quote
Amazon pulled its fourth quarter advertisements on Bloomberg's website, a move some within the media giant think is retribution for its controversial story alleging that Chinese spies hacked into the online retailer's servers. According to a source in position to know, Amazon's digital media buyer, Initiative, informed Bloomberg's sales staff on October 16 that it would cancel its ad buys for the fourth quarter due to budget cuts. Internally, the source said, the staff received that decision, made only eight days after a previous communication with Initiative confirming that the ads would run, as a direct response to Amazon's displeasure over the October 4 story. (Amazon announced Thursday that its marketing expenses for Q3 2018 were 3.3 billion dollars, up more than 800 million dollars from the year before.) [...] According to multiple sources, Bloomberg was not invited to Apple's fall product event next week in Brooklyn.

Tech giants still angry over false accusations. Or: deep state cover-up continues?
Title: Re: SMCI - Super Micro
Post by: writser on November 16, 2018, 05:45:15 AM
Supermicro® Announces First Quarter Fiscal 2019 Preliminary Financial Information and Decision to Restate Prior Period Financial Statements: link (https://www.businesswire.com/news/home/20181115006021/en/)

Quote
The Company expects to report the following financial results for the quarter ended September 30, 2018:

* Net sales in a range of $952 million to $962 million compared to its previous guidance range of $810 million to $870 million

* GAAP and non-GAAP gross margin in the range of 13.2% to 13.4%

* GAAP fully diluted earnings per share in the range of $0.35 to $0.39; non-GAAP fully diluted earnings per share in the range of $0.66 to $0.70

* Cash flow from operations of $50 million and capital expenditures of $4 million

[..]

As of September 30, 2018, total cash, cash equivalents and short-term investments was $104.1 million and bank debt was $79.6 million.


Conference call transcript: link (https://finance.yahoo.com/news/edited-transcript-smci-earnings-conference-095303294.html?.tsrc=rss)

Quote
Super Micro had a strong first quarter of revenue in net profit. As Charles mentioned, we estimate first quarter revenue within the range of $952 million to $962 million. It was approximately 40% higher year-over-year and above our guidance range of $810 million to $870 million. We grew revenue in all market verticals with key markets growing significantly year-over-year. Global 2000 grew approximately 130% year-over-year. Internet Data Center grew approximately 150%, while non-Internet Data Center grew approximately 95% year-over-year.

Accelerated computing was up 26% and Embedded grew approximately 30%.

On a year-over-year basis, the U.S. enjoyed the highest growth at nearly 45%, followed by EMEA that grew nearly 50% and Asia Pac that was up approximately 30%.

Quote
For the first quarter, we estimate cash generated from operations was $50 million. After deducting CapEx of $4 million, we estimate free cash flow of $46 million for the first quarter.

Market cap: ~600m.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on November 16, 2018, 07:31:05 AM
@ $13 per share I think the market cap here is somewhere around $640 million. For $640 million you are buying:

$22 million in net debt (94 million cash - 116 million debt).

Based on the 6/30/17 balance sheet the company is close to being a net-net. Assuming no inventory write-offs, it probably is a net-net at this point given the growth that they showed last fiscal year.

FY 2018 results (ended 6/30/2018): $3.3 billion in revenue, at least $428 million in gross profit, and a minimum of $1 per diluted share GAAP earnings.

2 million sq feet of real estate in San Jose, CA + a manufacturing facility in Taiwan.

Obviously this is a speculative situation (do you own due diligence!), but I think a case can be made for buying this here.

To update my original post on this:

@ $14 per share the market cap is ~$700M

For ~$700M you are buying:

$24.5M in net cash

FY 2018 (ended 6/30/18) revenue that will probably come in over $3.3B. Although I expect their business will slow down, they just did at least $952M in revenue in Q1 2019. Company is consistently profitable.

2 million sq feet of real estate in San Jose, CA + a manufacturing facility in Taiwan.

On the restatement: This company was (IMO) formerly operating as a de facto privately owned Taiwanese company. This manifested in the accounting department allowing overly aggressive salespeople to ship product and book revenue in earlier periods than was appropriate. On the CC the CFO used the phrase "roll effect" to describe how the restatements are pushing revenue recognition to later Qs. I think the important thing is that the sales and revenues appear to have been real, not fraud, straw man purchases, or other financial tomfoolery.     
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on November 27, 2018, 08:35:06 AM
Some smart thoughts on Super Micro. I agree with most of his points, but am significantly more circumspect on valuation. No affiliation.

https://twitter.com/CVCResearch/status/1063836063720857600 (https://twitter.com/CVCResearch/status/1063836063720857600)
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on December 06, 2018, 12:08:28 PM
No clue why this is up over 9% amidst general market weakness. I took the opportunity to lock in some gains.
Title: Re: SMCI - Super Micro
Post by: writser on December 07, 2018, 06:56:41 AM
Good for you. No clue why shares were up so much yesterday. Some people speculated it was due to good Cloudera earnings but what do I know. Seems a bit far-fetched.

I also sold some shares (was only a small position to begin with). The past few weeks we've heard nothing about the 'hacked chips'. Story has been firmly denied by everybody except for Bloomberg. Shares have creeped up and now trade around prices also seen in May and in August - before the Bloomberg article. Looks like the storm has passed. Company might still be cheap and I'm probably selling too soon but I'm too stupid / lazy to figure out the long-term value of this company.

After the storm has blown over Nate can buy my shares and make the easy money.

So, time for Nate to step in?
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on December 07, 2018, 07:51:09 AM
Good for you. No clue why shares were up so much yesterday. Some people speculated it was due to good Cloudera earnings but what do I know. Seems a bit far-fetched.

I also sold some shares (was only a small position to begin with). The past few weeks we've heard nothing about the 'hacked chips'. Story has been firmly denied by everybody except for Bloomberg. Shares have creeped up and now trade around prices also seen in May and in August - before the Bloomberg article. Looks like the storm has passed. Company might still be cheap and I'm probably selling too soon but I'm too stupid / lazy to figure out the long-term value of this company.

After the storm has blown over Nate can buy my shares and make the easy money.

So, time for Nate to step in?

I've also seen similar speculation about the pop yesterday, but I wouldn't pretend to know. I also wouldn't pretend to know what the right valuation for this company is. I wouldn't be surprised if it goes significantly higher once they finish getting the financials cleaned up. I also wouldn't be surprised if the stock goes lower on more controversy around motherboard security vulnerabilities (even though the "spy chips" story looks to be complete bunkus).

Also, I don't like SMCI management. It's not uncommon for East Asian companies to be run like they are the founders' personal fiefdoms. SMCI, although technically an American company, fits that mold really well. [Anyone reading this can insert here their favorite Munger quote about how it's really hard to change a company's culture].
Title: Re: SMCI - Super Micro
Post by: writser on December 11, 2018, 03:50:44 AM
https://www.reuters.com/article/us-supermicro-chips/super-micro-says-review-found-no-malicious-chips-in-motherboards-idUSKBN1OA12R

Quote
A person familiar with the analysis told Reuters it had been conducted by global firm Nardello & Co and that customers could ask for more detail on that company’s findings.

Nardello tested samples of motherboards in current production and versions that were sold to Apple Inc and Amazon.com Inc, which were both named in the article, the person said.

It also examined software and design files without finding any unauthorized components or signals being sent out.

Of course it's unclear if there's much added value in this research given that it was instigated by SMCI, who have denied the whole thing all along.
Title: Re: SMCI - Super Micro
Post by: writser on January 02, 2019, 11:59:29 AM
Another mysterious day of trading. Shares traded as high as $16.50 two weeks ago, sold down to $14 and are up ~10% today. All on basically no news (as far as I can see). No clue what is going on. Tax loss selling and subsequent buying?
Title: Re: SMCI - Super Micro
Post by: Gregmal on January 02, 2019, 12:14:43 PM
Another mysterious day of trading. Shares traded as high as $16.50 two weeks ago, sold down to $14 and are up ~10% today. All on basically no news (as far as I can see). No clue what is going on. Tax loss selling and subsequent buying?

At least for one day, I've noticed probably what I'd refer to as the Mother of All January effects in A LOT of names that got the beat down last year.
Title: Re: SMCI - Super Micro
Post by: writser on February 15, 2019, 12:58:10 AM
Some snippets from yesterday's press release (https://seekingalpha.com/pr/17413655-supermicro-announces-second-quarter-fiscal-2019-preliminary-financial-information) and conference call (https://seekingalpha.com/article/4241301-super-micro-computers-smci-ceo-charles-liang-q2-2019-results-earnings-call-transcript):

Quote
We continue to generate cash and estimate cash generated from operations was approximately $42 million. After deducting CapEx of $4 million, we estimate free cash flow of approximately $38 million for the quarter.
[..]
On a cumulative basis over the last three quarters, we estimate free cash flow was approximately $114 million.
Impressive, but is this sustainable, normalized cashflow or not?

Quote
The Company expects to report the following financial results for the quarter ended December 31, 2018:

Net sales in a range of $915 million to $925 million compared to its previous guidance range of $830 million to $890 million

[..]

Our fiscal year today total revenue approximately 23% ahead of last year, in line with our traditional growth trend

[..]

The Company expects net sales in a range of $800 million to $860 million for the third quarter of fiscal year 2019 ending March 31, 2019.

[..]

We believe we are back to business as usual.

Beating guidance. Guidance for q3 2018 was $785m - $795m.

Quote
As of December 31, 2018, total cash, cash equivalents and short-term investments was $109.1 million and bank debt was $48.3 million.
March 2018: $136m cash and $186.3m debt.

Quote
We deliver a draft of the fiscal 2017 10-K with restating financial statements from 2015 and 2016 to our independent auditors in late January. They are reviewing the draft 10-K and are working to complete their integrated audit. As a result of our conclusions, our independent auditors continue to perform more testing of our accounting analyzes and internal control assessment.

We are working closely each day with our independent auditors to complete the remaining audit procedures. Our internal audit team is developing a prioritized remediation roadmap to address the material weaknesses from our internal control assessments. We continue our procedures on fiscal 2018 financials in parallel and are making solid progress.

So to close, we remain laser focused on resolving our SEC filings.

Of course the filings are still an incredible mess. How many shares are outstanding now? No idea .. However, 'spygate' still looks to me like a complete non-event. The balance sheet seems to be solid and the company generated boatloads of cash (paid off $138m in debt last three quarters).

I only bought a small position last year and sold half my shares during the run-up but the more I follow this story the more I'm tempted to get back in ..
Title: Re: SMCI - Super Micro
Post by: writser on February 15, 2019, 01:00:09 PM
I got so enthusiastic after reading the previous forum post that I decided to buy back my full position on the opening. Worked out great so far. Impressive uptick today. Loved stocks surprise on the downside, hated stocks surprise on the upside.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on February 20, 2019, 01:27:13 PM
I got so enthusiastic after reading the previous forum post that I decided to buy back my full position on the opening. Worked out great so far. Impressive uptick today. Loved stocks surprise on the downside, hated stocks surprise on the upside.

Nicely Done!
Title: Re: SMCI - Super Micro
Post by: Liberty on February 21, 2019, 03:48:35 PM
Did Bloomberg retract their uncorroborated piece yet?
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on February 21, 2019, 04:40:53 PM
Did Bloomberg retract their uncorroborated piece yet?

No, I don't believe they have.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 05, 2019, 12:52:28 PM
Alright fellas, I just jumped back onto this garbage barge full of cut rate motherboards. @ $16.40 I estimate the stock is currently around NCAV + they own real estate that has significant value. 

Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 15, 2019, 02:51:26 PM
Earnings look good. Revenue at the top of the guidance range. They continue to generate cash as working capital shrinks.

One nice detail on the call: Financials for FY 2018 (ended 6/30/18) have been submitted to auditor. This shows that they continue to make progress getting their financial statements up-to-date.

https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary (https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary)
Title: Re: SMCI - Super Micro
Post by: scorpioncapital on August 15, 2019, 11:45:07 PM
Do China Tarriffs in some ways effect them? I know Intel and some of the others were impacted somewhat.
Title: Re: SMCI - Super Micro
Post by: writser on August 16, 2019, 03:55:53 AM
Earnings look good. Revenue at the top of the guidance range. They continue to generate cash as working capital shrinks.

One nice detail on the call: Financials for FY 2018 (ended 6/30/18) have been submitted to auditor. This shows that they continue to make progress getting their financial statements up-to-date.

https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary (https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary)

Almost a year after the hacking 'scandal' I think it's safe to say that that story was overblown and that the market overreacted. I sold my position when shares traded over $20 this year but I'm tempted to get back in. Some random thoughts:

- If you compare the 2017 press release (https://www.sec.gov/Archives/edgar/data/1375365/000162828017008033/exhibit991q4-2017.htm) to the new 2017 annual report (https://www.sec.gov/Archives/edgar/data/1375365/000137536519000039/smci-2017630x10kxa.htm), book value decreased by 27 million, inventory increased by 100m, and short-term debt increased by 93m (wtf?), gross profit down 8m, etc. Not some obscure minor issues: just a total mess. That doesn't inspire much faith. Also note that the CFO on the most recent conference call didn't want to confirm that the final audited 2018 statements would be 'in line' with the 2018 quarterly press releases. Ugh.

- Even given their accounting issues disclosure the past few quarters has been abysmal. Even ASTA Funding (http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/asfi-asta-funding/10/) disclosed more information when they were past due with their filings and that is not something to be proud of. We know nothing about the balance sheet apart from net cash, we don't even know the current share count.

- Since June 2017 they've gone (reportedly) from from a -50m net cash position to a +164m cash position, generated ~$2.20 / share in GAAP earnings and grew revenue at a nice clip. Even if you allow for some accounting restatements it looks ok. Doesn't look like the large increase in revenue generated lots of extra earnings though.

- I'm not sure how sustainable the reported cash flow is. I think SMCI had very inefficient working capital management and they are working on fixing this (which is a good thing) but the resulting cashflow is not normalized cashflow. The CFO in the latest conference call: "I think if you look at the cash that we have now, certainly, we have harvested some of that from the balance sheet. And we know that they're going to need that soon we continue to grow again". Doesn't look like a return of capital is on the table.

- Insider transactions paint a bleak picture. I don't see a single buy the past 10 years and insiders have been selling a lot .. Sharecount is steadily increasing.

Tangible book is now probably around $17 (is that relevant?), $3+ / share in cash, and TTM earnings of ~$1.60 / share.  Probably too cheap but I don't think I want to own this with the thesis being it should trade at a premium multiple. Tempted but probably not buying.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 16, 2019, 06:48:24 AM
Do China Tarriffs in some ways effect them? I know Intel and some of the others were impacted somewhat.

Yes, they have been and continue to be negatively impacted. They work closely with Intel, so I would imagine there's a similar dynamic.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 16, 2019, 08:02:50 AM
Earnings look good. Revenue at the top of the guidance range. They continue to generate cash as working capital shrinks.

One nice detail on the call: Financials for FY 2018 (ended 6/30/18) have been submitted to auditor. This shows that they continue to make progress getting their financial statements up-to-date.

https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary (https://www.businesswire.com/news/home/20190815005647/en/Supermicro%C2%AE-Announces-Fourth-Quarter-Fiscal-2019-Preliminary)

Almost a year after the hacking 'scandal' I think it's safe to say that that story was overblown and that the market overreacted. I sold my position when shares traded over $20 this year but I'm tempted to get back in. Some random thoughts:

- If you compare the 2017 press release (https://www.sec.gov/Archives/edgar/data/1375365/000162828017008033/exhibit991q4-2017.htm) to the new 2017 annual report (https://www.sec.gov/Archives/edgar/data/1375365/000137536519000039/smci-2017630x10kxa.htm), book value decreased by 27 million, inventory increased by 100m, and short-term debt increased by 93m (wtf?), gross profit down 8m, etc. Not some obscure minor issues: just a total mess. That doesn't inspire much faith. Also note that the CFO on the most recent conference call didn't want to confirm that the final audited 2018 statements would be 'in line' with the 2018 quarterly press releases. Ugh.

- Even given their accounting issues disclosure the past few quarters has been abysmal. Even ASTA Funding (http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/asfi-asta-funding/10/) disclosed more information when they were past due with their filings and that is not something to be proud of. We know nothing about the balance sheet apart from net cash, we don't even know the current share count.

- Since June 2017 they've gone (reportedly) from from a -50m net cash position to a +164m cash position, generated ~$2.20 / share in GAAP earnings and grew revenue at a nice clip. Even if you allow for some accounting restatements it looks ok. Doesn't look like the large increase in revenue generated lots of extra earnings though.

- I'm not sure how sustainable the reported cash flow is. I think SMCI had very inefficient working capital management and they are working on fixing this (which is a good thing) but the resulting cashflow is not normalized cashflow. The CFO in the latest conference call: "I think if you look at the cash that we have now, certainly, we have harvested some of that from the balance sheet. And we know that they're going to need that soon we continue to grow again". Doesn't look like a return of capital is on the table.

- Insider transactions paint a bleak picture. I don't see a single buy the past 10 years and insiders have been selling a lot .. Sharecount is steadily increasing.

Tangible book is now probably around $17 (is that relevant?), $3+ / share in cash, and TTM earnings of ~$1.60 / share.  Probably too cheap but I don't think I want to own this with the thesis being it should trade at a premium multiple. Tempted but probably not buying.

- No dispute that the financials were a mess. The two principal financial people at the company were the CEO's wife (that sounds familiar) and a CFO who had been there since the beginning of the company. In my opinion neither of them were qualified. Additionally, the CEO is an engineer who appears to focus 100% on product development. The good news is that the old CFO left in early 2018 and the CEO's wife is no longer Chief Administrative Officer and Treasurer. Now she is just a "Vice President." They also just added the former CFO of Brocade to the board.

- My understanding based on the comments they've made is that the vast majority of the financial restatements relate to the timing of revenue recognition. Basically the sales guys were allowed to book sales super aggressively...in ways that a competent accounting department would never allow. So, for example, sales that should have been booked in Q2 were booked in Q1. The company is now having to go sale-by-sale to try and correct the revenue recognition post hoc. That's a big, big job. Think about how that would affect the inventory levels, etc for any given period.

- I have no idea how they screwed the 2017 short term debt # up, but the total amount of debt looks to be the same on both statements

- Yeah, disclosure hasn't been good since the accounting problems were revealed. I have in my notes that @ 3/31/19 there were 49,881,914 [basic] shares. I think they said this on the Q3 call

- No, they have $236 million in net cash @ 6/30/19

- The recent FCF is not sustainable. Like most manufacturers they need more working capital when they are growing, and less when they are shrinking. Revenue has been down Y/Y the last two Qs, so cash has gone up as inventory is sold.

- CFO basically refuses to make any statements about future buybacks, dividends, etc. The company has bought back shares in the past.

- CEO looks to own ~16% of the company.

- Premium multiple isn't something that's even on my mind here.

Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 16, 2019, 08:10:21 AM
Look, all I'm really saying here is that I'm going to keep posting in this thread until Liberty puts 110% of his portfolio in this name.
Title: Re: SMCI - Super Micro
Post by: writser on August 16, 2019, 09:46:25 AM
Yes, the reshuffles and the new board member are good. 164m cash was a bit sloppy from me, that was the previous quarter.

- Premium multiple isn't something that's even on my mind here.

I didn't mean I expect this to trade at a 50x P/E ratio or something like that. But what I was trying to say is: where do you think this should trade? It's not _super_ cheap at the moment. Maybe it is when you look at an EV/EBIT basis but I think that that is a bit optimistic as the cash will be plowed back into the business. After today's run we're trading at a TTM P/E multiple of ~11, slightly above tangible book and a EV/EBIT of 6 (guesstimate)? What I'm saying is I'm not really comfortable buying at a 11x multiple saying it should trade at a 15x multiple. First of all that's not my cup of tea and second, this is a business with some issues so I'm not actually sure a much higher multiple is warranted. I guess it is cheap but I like to have something more tangible.

Do you have a target price in mind and if so, how did you arrive at it? I've been in an out twice or something opportunistically but I find it hard to peg a price on the business.
Title: Re: SMCI - Super Micro
Post by: scorpioncapital on August 17, 2019, 02:59:29 AM
Do China Tarriffs in some ways effect them? I know Intel and some of the others were impacted somewhat.

Yes, they have been and continue to be negatively impacted. They work closely with Intel, so I would imagine there's a similar dynamic.

I read they moved some manufacturing to Taiwan...although in theory Taiwan is still China, not sure if that means things going in or out of Taiwan from the USA are affected the same way.

It may be a conspiracy theory, or maybe just local cultural connection but the CEO is of Chinese heritage. Do you think China might somehow make exceptions to a more rigid import or export regime for companies like this?
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 19, 2019, 07:07:28 AM
Do China Tarriffs in some ways effect them? I know Intel and some of the others were impacted somewhat.

Yes, they have been and continue to be negatively impacted. They work closely with Intel, so I would imagine there's a similar dynamic.

I read they moved some manufacturing to Taiwan...although in theory Taiwan is still China, not sure if that means things going in or out of Taiwan from the USA are affected the same way.

It may be a conspiracy theory, or maybe just local cultural connection but the CEO is of Chinese heritage. Do you think China might somehow make exceptions to a more rigid import or export regime for companies like this?

CEO is from Taiwan. And no, I don't think that.
Title: Re: SMCI - Super Micro
Post by: Foreign Tuffett on August 19, 2019, 07:31:53 AM
Yes, the reshuffles and the new board member are good. 164m cash was a bit sloppy from me, that was the previous quarter.

- Premium multiple isn't something that's even on my mind here.

I didn't mean I expect this to trade at a 50x P/E ratio or something like that. But what I was trying to say is: where do you think this should trade? It's not _super_ cheap at the moment. Maybe it is when you look at an EV/EBIT basis but I think that that is a bit optimistic as the cash will be plowed back into the business. After today's run we're trading at a TTM P/E multiple of ~11, slightly above tangible book and a EV/EBIT of 6 (guesstimate)? What I'm saying is I'm not really comfortable buying at a 11x multiple saying it should trade at a 15x multiple. First of all that's not my cup of tea and second, this is a business with some issues so I'm not actually sure a much higher multiple is warranted. I guess it is cheap but I like to have something more tangible.

Do you have a target price in mind and if so, how did you arrive at it? I've been in an out twice or something opportunistically but I find it hard to peg a price on the business.

I don't have a target price here. I doubt anyone knows the intrinsic value (a phrase I dislike) of something like this given the significant uncertainty and lack of full financials.

I think an argument could still be made here that the company trades around liquidation value. That's still too cheap for a company that is consistently profitable and has shown impressive growth (they did significantly more rev last Q than in all of FY 2010).

Hopefully they will grow. If they don't grow then they will have the cash. If they do grow...well, the market likes companies that are growing (and rightfully so).

All this said, I did sell part (not all) of my position on Friday. So I have taken some chips off the table, so to speak.