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When Nvidia CEO Jensen Huang got onstage at an event in his native Taiwan in 2024 to talk about the future of AI and supercomputers with Supermicro CEO and co-founder Charles Liang, the familiarity between the two was obvious.\u00a0<\/p>\n
\u201cWhen we\u2019re together, sometimes we speak Taiwanese, sometimes we speak Mandarin, and then when we disagree, we speak English,\u201d Huang joked in English.\u00a0<\/p>\n
Huang was there to give a keynote address alongside Liang, and the two marveled at stacked server racks as they slipped out in and out of English to joke and compliment each other on their respective tech.\u00a0<\/p>\n
\u201cVery beautiful,\u201d said Huang, as he gazed at a server. \u201cCharles said that everything in here is Nvidia, for all the American citizens.\u201d<\/p>\n
At the time, their companies\u2014located in San Jose and Santa Clara about a 15-minute-drive from each other in Silicon Valley\u2014seemed in sync, and the two appeared jovial as they riffed in front of a packed crowd. But a high-profile scandal involving Supermicro has thrown a wrench into the tight relationship between the two companies, threatening a decades-long partnership that has made billions for each organization and helped power the AI boom.<\/p>\n
In March, Supermicro co-founder Yih-Shyan \u201cWally\u201d Liaw was arrested by federal agents in California on charges that he allegedly smuggled $2.5 billion worth of Nvidia-powered servers to China in 2024 and 2025. Liaw has pleaded not guilty and is free on a $5 million bond. Supermicro, Liang, and the company\u2019s third co-founder Sara Liu were not named as defendants, nor is Nvidia implicated. In a letter to investors, Liang said Supermicro was a victim in the smuggling scheme.\u00a0<\/p>\n
\u201cI am deeply saddened and shocked that actions of these individuals were placed above our mission and our responsibility to national security,\u201d Liang\u2019s letter stated. He then wrote in bold: \u201cIt appears that Supermicro has been a victim of the elaborate schemes orchestrated by these individuals, which deceived both federal authorities and our internal compliance team.\u201d<\/p>\n
While Liang seeks to distance the company from the tainted elements, Supermicro\u2019s longer-term fate may hinge on whether Nvidia stays close or decides to keep its distance. Nvidia is more than just a longtime partner to Supermicro, it\u2019s an essential part of its business. Supermicro makes about 71% of its revenue from products mostly built around Nvidia\u2019s GPUs\u2014the powerful chips used for training and running AI models. But despite this reliance, Supermicro has no long-term supply contract with Nvidia.<\/p>\n
Liaw\u2019s arrest raises \u201cserious credibility issues\u201d for Supermicro, analysts at Bernstein recently wrote in a note to investors. If Nvidia opts to distance itself from Supermicro, the loss of GPUs could have a \u201cdevastating impact\u201d on Supermicro\u2019s businesses.<\/p>\n
A note written by senior tech analyst Mehdi Hosseini from trading and investment firm Susquehanna called for the ouster of Liang and the entire Supermicro board. Liang has been CEO for nearly 32 years.<\/p>\n
\u201cIn our view, this indictment only underscores the urgency of replacing the current Chairman\/CEO with an external candidate and refreshing the entire board with fully independent directors,\u201d Susquehanna\u2019s note states.\u00a0<\/p>\n
A bond that goes back \u2018almost since day one\u2019<\/p>\n
Nvidia and Supermicro were both founded in Silicon Valley in 1993, with each occupying different niches in the burgeoning tech industry. While Nvidia makes the specialized processors used, initially, for computer graphics and now for AI, Supermicro builds server racks and cooling systems that incorporate the chips. It\u2019s one of many companies, including Dell and HPE, that build such systems and compete fiercely.<\/p>\n
The partnership between Supermicro and Nvidia began \u201calmost since day one\u201d Liang said in an interview with Barron\u2019s in 2023. But the ties between the two companies got more established after Supermicro went public in 2007. Nvidia was launching its first data center GPU and picked Supermicro as its first go-to-market partner, explained Kevin Connors, vice president of sales at Nvidia during an event in Taiwan in 2022. Connors said Nvidia worked with Supermicro to configure and test the systems against heavy workloads so Supermicro could sell the products to customers.<\/p>\n
\u201cSupermicro has a proven track record of time-to-market execution\u2014no one moves faster than Supermicro, and Nvidia loves speed,\u201d said Connors, speaking from a stage decorated with stacked cubes emblazoned separately with the companies\u2019 logos.\u00a0<\/p>\n
Connors said the trend would continue with next-generation systems that would include Nvidia\u2019s Grace and Hopper models.\u00a0<\/p>\n
\u201cWe\u2019ve had a great journey together, but the journey\u2019s just begun,\u201d said Connors. And in the years since, Supermicro has become more dependent on Nvidia, which dominates the market for the GPU chips that are critical for AI.<\/p>\n
Today, Supermicro counts on its access to Nvidia\u2019s ultra-hot GPUs for the lion\u2019s share of its billions in revenues. Between fiscal 2023 and fiscal 2025, Supermicro\u2019s sales tripled from $7.1 billion to $22 billion following the explosive introduction of ChatGPT to the general public. The stock subsequently crossed $1,000 a share in March 2024, and its market cap hit $67 billion. That hockey-stick growth led to Supermicro joining the S&P 500 in 2024? and making a buzzy debut on the Fortune 500 that same year.\u00a0<\/p>\n
One single chip supplier\u2014known to be Nvidia, although it is unnamed in Supermicro\u2019s filings\u2014accounted for 30.7% of what Supermicro spent on components for customers\u2019 orders in fiscal 2023. That figure ballooned to 64.4% by fiscal 2025. Supermicro doesn\u2019t disclose the names of its suppliers, but analysts consider Nvidia to be the supplier and refer to the company in questions to Liang and chief financial officer David Weigand.\u00a0<\/p>\n
During an earnings call in November 2024, Liang said the company had recently reached the milestone accomplishment of deploying \u201cthe world\u2019s largest DLC AI supercluster with 100,000 Nvidia GPUs.\u201d That 100,000 figure means about $3 billion in GPU purchases from Supermicro to Nvidia in a single quarter\u2014no other supplier could come close to reaching the purchase orders Supermicro was directing to Nvidia on behalf of its customers.<\/p>\n
Supermicro confirms in its most recent annual report it \u201cdoes not have long-term supply contracts for all critical materials and core components, but instead often purchases these materials and components on a purchase-order basis.\u201d Supermicro gets purchase orders from customers and then relies on Nvidia to choose it for chip allocations, and Nvidia can walk away whenever it wants.\u00a0<\/p>\n
Would Nvidia walk away?<\/p>\n
So far, there\u2019s been no public indication that Nvidia is changing its business relationship with Supermicro, and Nvidia would not comment when asked whether it is reevaluating the relationship.\u00a0<\/p>\n
An Nvidia spokesperson told Fortune the firm\u2019s \u201cecosystem partners must be committed to strict compliance at every level,\u201d adding that its diligence has led to prosecutions of would-be smugglers and that it will continue to work with the government.<\/p>\n
Given how vital the relationship is to Supermicro, though, investors are paying close attention for any signs of change. Days before Liaw\u2019s arrest, for example, Huang got onstage at Nvidia\u2019s GTC conference and praised Supermicro\u2019s competitor.<\/p>\n
\u201cAs you know, Dell is the world\u2019s leading computer-systems maker and they also are one of the world\u2019s leading storage providers and they worked with us to create the Dell AI data platform,\u201d Huang told the audience.<\/p>\n
Without access to Nvidia chips, Supermicro\u2019s systems would be far less attractive. However, in recent years the company has boosted its relationships with other suppliers, including AMD, Broadcom, and Intel, although those relationships are far less material to its bottom line. <\/p>\n
Nvidia doesn\u2019t break out customers specifically in its disclosures, but Supermicro is estimated to have accounted for between $12 billion to $13 billion of Nvidia\u2019s $130 billion in revenue last year. However, Supermicro punches above its weight in speed to market, and a fracture in the partnership could temporarily hamper Nvidia\u2019s ability to hit aggressive hyperscaler timelines. At the same time, Dell, HPE, and Lenovo all have co-engineering relationships with Nvidia that could fill the gap.\u00a0<\/p>\n
Sachin Ohal, a veteran chief technology officer at International Systems Technologies, said the reputational issue for Nvidia is wholly separate from the operational tie-up between two companies. Customers will keep buying Nvidia\u2019s chips regardless of what a Supermicro cofounder is alleged to have done, he said. And for Supermicro\u2019s customers, changing vendors is a completely different calculus that has nothing to do with a brewing smuggling scandal.\u00a0<\/p>\n
Any customer that wants to exit Supermicro would need to wait three to six months for a transition period, which would include a board-level sourcing and vendor management review, data center chipset review for cyber, data and operations risk review, brand insurance analysis, and a formal account management process, he explained. Funding would need to be allocated for the transition, and a replacement vendor qualified. None of this is free, noted Ohal.\u00a0<\/p>\n
Even more critically, customers have already paid deposits against future Supermicro orders and those deposits have likely already moved from customer accounts to Supermicro and from there onto chip manufacturers like Nvidia, Dell, intel and Micron. Because customers are so sticky with Supermicro, there\u2019s less urgency for Nvidia to act quickly to sever the partnership due to reputational risk or optics.\u00a0<\/p>\n
\u201cThe business reality is that it is not easy to decouple or just leave,\u201d said Ohal. \u201cIn the tech world, marriage and divorce both cost.\u201d<\/p>\n
The Fallout<\/p>\n
Supermicro\u2019s stock plummeted 33% in a single day on news of the indictment, although it has regained about 13% since the company announced Liaw\u2019s resignation from the board.<\/p>\n
According to the March indictment, Liaw and two others worked to make it seem as though server purchases were going from being assembled in the U.S., shipped to Supermicro\u2019s Taiwan facilities, and then routed to an unnamed Southeast Asian company that was purportedly the final customer. In reality, the indictment states, the tech went from the Southeast Asian company onto Chinese buyers. To hide what they were doing, the accused put thousands of fake servers in warehouses to twice fool auditors, and used hair dryers to remove sticky labels from packages.\u00a0<\/p>\n
The indictment claims the front company behind the purchases grew to become Supermicro\u2019s 11th most-profitable customer worldwide, generating $99.7 million in revenue during a single quarter for Supermicro in fiscal 2024, ranking it alongside major U.S. tech and social media companies.\u00a0<\/p>\n
Supermicro has said it is cooperating with authorities.<\/p>\n
\u201cWe have taken action against all identified employees and those parties no longer have any relationship with Supermicro,\u201d Liang wrote in his letter. The company said Liaw had resigned from his role on the Supermicro board and declined further comment.\u00a0<\/p>\n
Proxy advisory firm ISS gave Supermicro the worst-possible score on corporate governance in a report issued last week, and recommended no support for the reelection of Liang and board members Tally Liu and Sherman Tuan at the company\u2019s annual meeting on April 15. ISS also recommended investors vote against Supermicro\u2019s request that investors approve more shares for its equity compensation plan due to what it deemed \u201cexcessive\u201d cost and burn rate in the plan. The proxy advisory firm pulled no punches in its assessment of leadership.\u00a0<\/p>\n
\u201cWhile it is acknowledged that current executives and directors have not been convicted of any crimes as of this writing, the board\u2019s failure to improve [Supermicro\u2019s] governance and oversight structure and practices, in the context of multiple serious allegations of accounting and compliance irregularities, is considered a material governance failure,\u201d the report states.<\/p>\n
But it isn\u2019t so simple to untangle Liaw from Supermicro or to distance Supermicro from the misdeeds of its past. Two decades ago, Supermicro pleaded guilty to illegally exporting computer equipment to Iran, and paid fines to the Department of Justice, the Treasury Department\u2019s Office of Foreign Assets Control, and the Commerce Department. In a 2020 report, the SEC charged Supermicro with accounting violations from 2015 to 2017; the allegations led to its former CFO resigning and a compensation clawback being exercised on Liang, who was not charged. Liaw resigned following the accounting probe, but he came back as a consultant in 2021, was reinstated as an executive in 2022, and joined the board again in 2023.\u00a0<\/p>\n
Bernstein analysts questioned the move to bring Liaw back into the fold.\u00a0<\/p>\n
\u201cIt\u2019s one thing being duped once by rogue employees (allegedly) committing crime right under your nose, but it\u2019s quite another hiring the same person back (as a board director too) and later for that same person to (allegedly) do something worse like this,\u201d the note states.<\/p>\n
In addition, Liaw holds 2.5% of Supermicro, a stake valued at about $327 million given the current stock price. He is the second-largest individual shareholder behind Liang and Liu, who together hold 11.4% of the company the three co-founded.<\/p>\n
Liaw is also deeply entwined with two other companies that are pivotal to Supermicro\u2019s operations. An unnamed sibling of Liaw\u2019s owns approximately 11.7% of Ablecom, which is a related company run by one of Liang\u2019s brothers that provides the physical structure that provides the racking and stacking aspect of the servers. Liaw\u2019s sibling also holds 8.7% of another related company run by another of Liang\u2019s brothers, Compuware, which provides specialized power distribution needs to Supermicro\u2019s customers.\u00a0<\/p>\n
Ohal said the relationships Supermicro has under its umbrella of related companies\u2014led by Liang\u2019s own brothers\u2014gives it a leg up over other companies.\u00a0<\/p>\n
\u201cIf the SEC releases a rule and a financial firm has to upgrade something, Supermicro can do it the next morning because they are already following this news,\u201d said Ohal. \u201cTheir back office is already preparing and designing the chassis, power distribution, and their smart solution architects are already designing what the changes are in the system.\u201d<\/p>\n
Supermicro\u2019s established alliance with the biggest brand means when products are in the last stage of R&D and testing, Supermicro is embedded enough that it can create data center infrastructure such as chassis and other power distribution components that allow Nvidia to focus on software and chips, said Ohal.\u00a0<\/p>\n
\u201cIf tomorrow morning Nvidia launched something, and one of the most important things in all the electronic devices is appropriate power consumption and power distribution within a data center, guess what?\u201d said Ohal. \u201cSupermicro has the biggest advantage because their family company is basically filling all those specialized needs.\u201d<\/p>\n
Charles Liang and Sara Liu own approximately 10.5% of Ablecom\u2019s stock, while Charles\u2019 brother Bill Liang owns 16% of Compuware along with his family, where Bill serves as CEO. Ablecom itself holds 15% of Compuware. In the past three fiscal years, Supermicro purchased $811.3 million in products and services from Ablecom, and $833.5 million products from Compuware. The three year combined total is $1.6 billion. Both companies\u2019 sales to Supermicro make up a majority of each company\u2019s total net sales, according to Supermicro, making Supermicro their primary source of revenue.\u00a0<\/p>\n
Greg Thomas, CEO of demand chain intelligence provider ChainSentry, said the relationship between Nvidia and Supermicro created a structural incentive problem, raising the risk that compliance scrutiny would be less rigorous than it needs to be.<\/p>\n
\u201cNvidia really needs Supermicro to be able to bring their chips to market at the scale and speed at which Supermicro\u2019s been doing it, and Supermicro needs the Nvidia chip allocations really to survive,\u201d said Thomas. \u201cThis is a kind of mutual dependency and there is a risk that compliance scrutiny becomes less independent and less rigorous than it needs to be.\u201d<\/p>\n
#Supermicro #soared #trillion #Nvidiaand #Jensen #Huang #walk #time<\/p>\n","protected":false},"excerpt":{"rendered":"
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