Investing.com — Super Micro Computer Inc (NASDAQ:SMCI) has been under a lot of pressure in recent months due to a short seller report, delayed financial filings, the risk of delisting and the resignation of its accountant last week . Amid the turmoil, Lynx Equity Strategies analyst KC Rajkumar now thinks the company has no choice but to remove the higher-priced NVIDIA (NASDAQ:NVDA) Blackwell program from its shipping pipeline.
Rajkumar highlights that Super Micro’s inventory on hand rose to $4.4 billion as of fiscal 2024 exit, more than triple last year’s level, while revenue only doubled. This had a direct impact on margins, profitability and cash flow, leaving the company in a vulnerable position due to the resignation of the accountant.
“The abrupt impact on inventory due to the high cost of liquid-cooled kits for the H100/H200 had a direct impact on margins and profitability,” Rajkumar said. “Cash flow from operations for FY24 was reported as negative $2.5 billion, versus positive $663 million a year ago. During FY24, the company raised ~$1.6 billion through a convertible offering; a secondary offering raised $1.75 billion in gross proceeds. And yet the company left FY merely neutral on a net cash basis.”
To ensure its long-term survivability, the analyst says, the company may have no choice but to remove the even more expensive Blackwell program from its transportation pipeline. This would also mean lowering revenue expectations for the 2024 financial year, the analyst said.
“Recall that FY25 revenue guidance of $26 billion to $30 billion includes Blackwell’s 2FH revenue,” the analyst pointed out. “We think the company’s weakened financial situation offers few alternatives. Could this improve gross margin trajectory in the second half of the fiscal year? It could. And that could be positive for the shares.”
“While we do not know the details of the accounting issues that prompted the company’s external auditors to resign, we wonder whether management’s response to abrupt changes in cash flow and balance sheet items may have something to do with it.” had to do,” the analyst continues. thinks.
Overall, the analyst believes SMCI faces significant challenges, starting with resolving its unsustainable inventory and profit issues. To stabilize, the country may have to scale back its Blackwell targets due to limited funding and difficult financial conditions. This would help SMCI focus on the H100 market and ensure long-term stability.
Super Micro is expected to provide a first-quarter 2025 business update after today’s close, and investors hope to learn more about the company’s problems and the solutions to address them.
