Super Micro Computer Inc (NASDAQ:SMCI) is facing a tumultuous period as it grapples with a short seller report, delayed financial filings, the risk of delisting, and the recent resignation of its auditor. Lynx Equity Strategies analyst KC Rajkumar believes that one of the critical decisions the company may have to make is to remove the expensive NVIDIA Blackwell program from its shipment pipeline.
According to Rajkumar, Super Micro’s inventory surged to $4.4 billion at the end of FY2024, more than triple the levels from a year ago, while revenue only doubled. This imbalance directly impacted margins, profitability, and cash flow, leaving the company in a precarious position following the auditor’s resignation.
The analyst pointed out that the high cost of liquid cooled kits for the H100/H200 had a significant impact on Super Micro’s margins and profitability, resulting in negative cash flow from operations for FY24. Despite raising substantial funds through convertible issues and secondary offerings, the company ended FY24 in a neutral net cash position.
To ensure its long-term survival, Super Micro may have no choice but to eliminate the even costlier Blackwell program from its shipment pipeline, which would also entail revising down its FY2024 revenue guidance. This decision could potentially improve the trajectory of gross margin in the latter half of the fiscal year and have a positive impact on the stock.
As SMCI prepares to release its first-quarter 2025 business update, investors are eager to learn more about the company’s challenges and its proposed solutions. The company’s focus in the coming months will likely be on addressing its unsustainable inventory and profit issues, possibly scaling back its Blackwell goals due to financial constraints and focusing on the H100 market for long-term stability.
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