Are Investors Spooked By Super Micro Computer, Inc. (NASDAQ:SMCI)?


Super Micro Computer, Inc. (NASDAQ:SMCI) quickly turned radioactive for many investors after it modified its guidance for F4Q2016 in a fashion that the market neither expected nor wanted. The company cut its topline and bottom-line forecasts for the June quarter, which is its F4Q2016, citing challenges such as weaker orders and delays in shipping.

Super Micro Computer, Inc. (NASDAQ:SMCI) also appeared to blame its woes on large customers that it says have increased volatility in its financial results. But the company also did make an announcement that should have soothed investors: a $100 million buyout. Did investors just miss the news or simply ignored it?

Shares repurchase program

It is not clear when SMCI expects to start repurchasing some of its shares. But the company said that it has set aside $100 million for buyback program. With shares of the company currently changing hands close to $20, repurchasing $100 million worth of stock could help remove a substantial amount of shares from circulation.

There are at least two favorable outcomes of a buyback. In one case, it helps lift earnings per share because there are fewer shares floating. The other benefit is that buyback has the tendency to raise the value of the remaining shares because a short supply of stock should see increased demand for it. Then there is the obvious benefit of putting money back in the pockets of shareholders.

What about the guidance issue?

Super Micro Computer, Inc. (NASDAQ:SMCI) trimmed revenue guidance for its F4Q2016 to a range of $520 to $524 million. It initially guided revenue for the quarter in the range of $580 to $640 million. The company also narrowed EPS guidance to the band of $0.15 to $0.17, down from the earlier guidance of $0.46 to $0.58.

Analysts were looking for revenue of $581.6 million and EPS of $0.50, which significantly dwarf SMCI’s new estimates.

What is causing problems at Super Micro Computer, Inc. (NASDAQ:SMCI)?

Super Micro Computer, Inc. (NASDAQ:SMCI) blamed weaker orders, softer pricing and delays in getting orders to customers as the reason it expects subdued results in F4Q2016. The management also hinted that serving large customer market is also causing problems for the company, but no remedy was proposed.


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