Ablecom and Compuware as Supermicro suppliers

analysisSupermicro's annual reports describe Ablecom Technology Inc. and Compuware Technology Inc. as privately held Taiwan-based companies and related parties whose sales to Supermicro make up a substantial majority of their own net sales; the annual report for fiscal 2019 instead says that a majority of Compuware's net sales were sales of Supermicro products to others. Supermicro's fiscal year ends on June 30. The prospectus for its 2007 initial public offering put purchases from Ablecom alone at about 32.1%, 32.2% and 31.3% of Supermicro's cost of sales in fiscal 2004, 2005 and 2006, and 37.3% and 33.8% in the three months ended September 30, 2005 and 2006. The two companies' combined share has since declined: 13.8%, 12.8% and 11.1% of cost of sales in fiscal 2015 to 2017, 9.0% and 9.2% in fiscal 2018 and 2019, 8.3%, 6.6% and 4.3% in fiscal 2022 to 2024, and 3.3% and 2.1% in fiscal 2025 and 2026. ^{1 2 3 4 5}

analysisEach company nonetheless supplies nearly all of one key component. Ablecom manufactured about 91.8%, 88.2% and 91.9% of the chassis in the products Supermicro sold in fiscal 2021 to 2023, and about 93.6%, 95.4% and 95.3% of the chassis Supermicro purchased in fiscal 2024 to 2026; the earlier series counts chassis in products sold and the later one chassis purchased, so the two are not on the same basis. The fiscal 2026 annual report states that Ablecom makes substantially all the chassis in Supermicro's products and that Supermicro's business could suffer if Ablecom suddenly became unable to supply them and substitute suppliers could not be qualified quickly. Compuware manufactured about 96.6%, 94.6% and 94.4% of the power supplies Supermicro purchased in fiscal 2024, 2025 and 2026. ^{6 4}

analysisThe related-party note in the fiscal 2026 annual report gives the latest amounts, in thousands of dollars. Cost of sales from Ablecom was $269,256 in fiscal 2024, $321,866 in fiscal 2025 and $390,491 in fiscal 2026, with fixed-asset purchases from Ablecom of $11,990, $18,659 and $12,737 and research and development costs with Ablecom of $4,513, $5,026 and $5,320. Cost of sales from Compuware was $280,801, $328,258 and $335,203, against Supermicro's net sales to Compuware of $46,618, $30,238 and $19,984, and sales and marketing costs with Compuware were $1,649 in fiscal 2025 and $1,776 in fiscal 2026. Total related-party cost of sales was $650,658 thousand in fiscal 2025 and $725,694 thousand in fiscal 2026. Supermicro's earlier income statements show related-party purchases in cost of sales of $227,661 thousand, $242,638 thousand and $236,062 thousand in fiscal 2015 to 2017 and $239,558 thousand, $371,076 thousand, $384,762 thousand and $552,136 thousand in fiscal 2021 to 2024, and related-party sales of $47,684 thousand, $29,110 thousand and $33,821 thousand and of $79,018 thousand, $147,091 thousand, $60,537 thousand and $69,791 thousand in the same years; these income-statement totals cover all related parties, not only Ablecom and Compuware. ^{4 3 6 1}

analysisSeparately, Supermicro's purchases are concentrated in a few large suppliers that its filings do not name, so the following shares are not attributed to Ablecom or Compuware. One supplier accounted for 31.0%, 26.0% and 21.8% of raw-material purchases in fiscal 2017, 2018 and 2019. Two suppliers accounted for 11.4% and 18.1% of total purchases in fiscal 2022, 30.7% and 13.5% in fiscal 2023 and 65.4% and 6.3% in fiscal 2024, and one supplier for 65.4%, 64.4% and 63.1% of total purchases in fiscal 2024, 2025 and 2026. ^{2 1 4}

analysisAccording to its annual reports for fiscal 2017 and 2019, Supermicro bought products from Ablecom worth $123.1 million in fiscal 2015, $117.6 million in fiscal 2016, $118.5 million in fiscal 2017, $144.4 million in fiscal 2018 and $137.9 million in fiscal 2019. It owed Ablecom $29.8 million at June 30, 2016, $30.8 million at June 30, 2017, $49.2 million at June 30, 2018 and $33.9 million at June 30, 2019. Separate payments to Ablecom for design services, tooling assets and miscellaneous costs were $4.9 million, $7.8 million and $5.2 million in fiscal 2015 to 2017 and $7.9 million and $7.4 million in fiscal 2018 and 2019, and outstanding purchase orders to Ablecom were $22.8 million, $23.5 million, $39.3 million and $31.0 million at June 30 of 2016, 2017, 2018 and 2019. ^{1 2}

analysisPurchases from Ablecom were $152.5 million in fiscal 2020, $122.2 million in fiscal 2021 and $192.4 million in fiscal 2022, with $40.1 million, $41.2 million and $46.0 million owed at the end of those years. The proxy statement of March 2026 reports purchases of $167.8 million in fiscal 2023, $269.3 million in fiscal 2024 and $321.9 million in fiscal 2025; amounts owed of $35.7 million, $98.6 million and $55.5 million at the end of those years; and design, tooling and miscellaneous payments of $12.1 million, $16.5 million and $23.7 million. It states that Ablecom's sales to Supermicro make up a majority of Ablecom's net sales. The fiscal 2023 annual report had given $36.9 million owed at June 30, 2023, rather than $35.7 million, and design, tooling and miscellaneous payments of $8.6 million, $8.3 million and $12.1 million in fiscal 2021, 2022 and 2023; the records reviewed do not explain the difference between the two June 2023 figures. ^{3 4 5}

analysisSupermicro's open purchase orders to Ablecom were $39.5 million cancelable and $36.0 million non-cancelable at June 30, 2022, $37.4 million and $23.7 million at June 30, 2023, and $99.0 million and $58.8 million at June 30, 2024; non-cancelable orders were $30.6 million at June 30, 2025 and $59.8 million at June 30, 2026. Supermicro describes the non-cancelable orders as its maximum exposure to loss from Ablecom and states that it does not guarantee any obligations of Ablecom or losses of its equity holders. Its accounts payable to Ablecom were $55,460 thousand at June 30, 2025 and $64,313 thousand at June 30, 2026, and to Compuware $74,292 thousand and $52,749 thousand at the same dates. ^{4 6 7}

analysisUnder its agreements with Ablecom, Supermicro outsources part of its design work and a significant part of its server-chassis manufacturing. It pays Ablecom for design, engineering and tooling and keeps the intellectual property. Ablecom buys most materials from third parties; components that Supermicro supplies, such as power supplies, are sold back to Supermicro at the price at which Supermicro sold them, so these component transactions produce no revenue for Supermicro. The agreements include product development, production and service agreements, credit agreements, product manufacturing and manufacturing services agreements and warehouse leases. The fiscal 2024 annual report states that, subject to certain exceptions, Ablecom has the exclusive right to be Supermicro's supplier of the specific products developed under those agreements. ^{1 2}

analysisSupermicro filed with the SEC in 2007, as Exhibit 10.24, a Product Manufacturing Agreement with Ablecom dated January 8, 2007. It was signed for Ablecom by Steve Liang as President on December 29, 2006 and for Supermicro by its Chief Financial Officer, Howard Hideshima, on January 8, 2007, and gives Ablecom's principal place of business as 5th Floor, No. 228, Lian-Cheng Rd., Chung-Ho City, Taipei County. Ablecom agreed to manufacture products under Supermicro's purchase orders for an initial one-year term that renews automatically for one-year periods unless Supermicro gives three months' or Ablecom six months' notice of non-renewal. During the term Supermicro agreed not to contract any third party to manufacture the products, a restriction that lapses if Ablecom is unable or unwilling to manufacture, raises its fees by more than an agreed annual percentage or misses the agreed delivery schedule. ³

analysisBefore the 2007 initial public offering Supermicro also sold server products to Ablecom, under a distribution agreement for Taiwan: net sales to Ablecom were about $3.9 million in fiscal 2006 and $1.8 million in the three months ended September 30, 2006, on terms the company called comparable to those of similar third-party distributors. Supermicro's Taiwan subsidiary leased about 8,400 square feet of office and factory space from Ablecom for about $6,200 a month from October 2004 to February 2006, and then about 14,000 square feet for about $13,000 a month under a one-year lease expiring in February 2007. The IPO prospectus stated that Supermicro's transactions with Ablecom had historically not been approved by an independent committee of its board because it had no independent directors. ⁴

analysisSupermicro bought products from Compuware worth $104.6 million, $125.0 million and $117.5 million in fiscal 2015 to 2017 (the fiscal 2019 annual report gives $117.8 million for fiscal 2017 purchases and $1.1 million for that year's design and tooling payments), $118.3 million and $138.9 million in fiscal 2018 and 2019, $130.6 million, $113.4 million and $170.3 million in fiscal 2020 to 2022, and $217.0 million, $280.8 million, $328.3 million and $335.2 million in fiscal 2023 to 2026. Compuware is also a buyer: Supermicro sold it products worth $47.6 million, $29.1 million and $23.0 million in fiscal 2015 to 2017, $46.9 million and $17.7 million in fiscal 2018 and 2019, and $36.3 million, $46.6 million, $30.2 million and $20.0 million in fiscal 2023 to 2026. ^{1 2 3 4 5}

analysisMoney was owed in both directions. Compuware owed Supermicro $3.7 million and $7.9 million at June 30, 2016 and 2017, $16.3 million and $14.4 million at June 30, 2018 and 2019, and $24.9 million, $10.0 million, $13.0 million and $0.6 million at June 30, 2023 to 2026. Supermicro owed Compuware $20.5 million, $32.2 million, $45.6 million and $34.4 million at June 30, 2016 to 2019, $46.5 million, $46.4 million and $60.0 million at June 30, 2020 to 2022, and $53.4 million, $66.4 million, $74.3 million and $52.7 million at June 30, 2023 to 2026. Payments to Compuware for design services, tooling assets and miscellaneous costs were $0.8 million, $1.1 million and $1.4 million in fiscal 2015 to 2017 (or $1.1 million for fiscal 2017 in the fiscal 2019 report) and $1.2 million and $0.7 million in fiscal 2018 and 2019. Outstanding purchase orders to Compuware were $40.0 million and $56.4 million at June 30, 2016 and 2017 and $111.7 million and $70.6 million at June 30, 2018 and 2019; they were $156.2 million cancelable and $46.8 million non-cancelable at June 30, 2023 and $129.7 million and $93.5 million at June 30, 2024, and non-cancelable orders were $118.3 million at June 30, 2025 and $182.2 million at June 30, 2026. Supermicro describes these orders as its exposure to loss from Compuware and states that it does not guarantee any obligations of Compuware or losses of its equity holders. ^{1 2 3 4 5 6}

analysisSupermicro outsources to Compuware part of its design work and a significant part of its power-supply manufacturing, paying for design, engineering and tooling and keeping the intellectual property. Compuware also makes motherboards, backplanes and other circuit-board components from components Supermicro sells to it, and sells the finished products back at the price of those components plus a “manufacturing value added” fee and other charges, which the two companies frequently renegotiate; Supermicro recognises no revenue on these component sales. The agreements include product development, production and service agreements, product manufacturing agreements and office leases. Supermicro also extends trade credit to Compuware: the fiscal 2024 annual report describes a $65.0 million line with net 60-day terms, and on November 19, 2025 Supermicro extended a $200.0 million line with net 90-day terms. ^{6 5}

analysisCompuware also sells Supermicro's products. Supermicro appointed it a non-exclusive distributor in Taiwan, China and Australia according to its annual reports for fiscal 2017, 2023 and 2024, and in Taiwan, China, Australia, Malaysia and the United States according to the report for fiscal 2026. Compuware buys at a discount from Supermicro's standard volume price and in exchange installs the products at end-customer sites and provides first-level customer support; Supermicro states that it believes these terms are similar to those of comparable third-party distributors. Compuware from time to time acts as Supermicro's sales representative for a percentage fee that Supermicro calls comparable to the fee offered to other sales representatives in the region. Supermicro agreed to pay Compuware a finder's fee of about $1.6 million in fiscal 2025, equal to 1% of net sales to a customer Compuware had referred, and about $1.8 million in fiscal 2026, a weighted average of about 0.16% of net sales to a referred customer, and describes the fee as consistent with market terms given Compuware's limited role and industry margins. ^{7 5 4 6 1}

analysisThe fiscal 2026 annual report describes further arrangements. Supermicro has extended Ablecom a $10.0 million trade credit line with net 30-day payment terms. It expects Ablecom and/or Compuware to keep warehousing an increasing number of components and subassemblies made by multiple suppliers before shipment to Supermicro's facilities in the United States and Europe, expects to keep leasing office space from them in Taiwan for research and development, and operates a joint management company with Ablecom for the common areas of their separately built manufacturing facilities in Taiwan. During fiscal 2026 Supermicro entered into a 50-year superficies (land-use right) agreement with Ablecom over three parcels of land in Taoyuan, Taiwan, which produces recurring lease income for Supermicro with rent adjusted periodically to the Taoyuan announced land value index; the rental income recognised in fiscal 2026 was not material. In the fourth quarter of fiscal 2026 Supermicro arranged for Ablecom to resell certain Supermicro products to an end customer in Japan, a transaction it describes as in the ordinary course of business and on terms consistent with those negotiated with other third-party resellers. ¹

analysisTwo land projects involved both suppliers. On November 8, 2021 Supermicro's wholly owned Taiwan subsidiary signed a Tripartite Agreement with Ablecom and Compuware for a three-way purchase of land near Supermicro's campus in Bade, Taiwan; after Ablecom advised that its agreements to buy the land from the third-party owners had been terminated, the Tripartite Agreement was terminated in the quarter ended December 31, 2022. The fiscal 2024 annual report states that Ablecom and Compuware are each developing campuses close to the campus Supermicro is developing in Malaysia, to expand manufacturing. ^{2 3}

analysisAcross all related parties, Supermicro's balance sheet shows accounts payable of $89,134 thousand at June 30, 2023 and $165,295 thousand at June 30, 2024, and its cash-flow statements show payments to related parties for property, plant and equipment of $4,818 thousand, $7,844 thousand and $10,625 thousand in fiscal 2022, 2023 and 2024. At June 30, 2026, $0.2 billion of its $34.2 billion of non-cancelable purchase commitments was owed to related parties. These amounts cover all related parties, not only Ablecom and Compuware. ^{3 1}

analysisSupermicro does not consolidate either supplier. In its fiscal 2024 annual report it concluded that Ablecom and its affiliate Compuware are variable interest entities, but that Supermicro is not their primary beneficiary because it lacks power over their most significant activities. The fiscal 2023 annual report warns that Supermicro may be disadvantaged by the economic interests of Charles Liang and Sara Liu as Ablecom stockholders and by Charles Liang's personal relationship with the chief executives of Ablecom and Compuware, and that it may not negotiate or enforce contractual terms with the two companies as aggressively as with an unrelated party. ^{1 2}

analysisA Taiwanese business magazine reported in June 2024 that Supermicro's Taiwan-linked supply chain had been dubbed the “Liang Brothers” supply chain: Charles Liang's younger brother Steve Liang (梁見發) runs Ablecom, which supplies server cases and racks, another brother, Bill Liang (梁見達), heads power-supply vendor Compuware, and both companies are located within Supermicro's factory complex in Bade District, Taoyuan. Supermicro's filings confirm that Steve Liang and Bill Liang are Charles Liang's brothers and lead the two companies, and describe leases of office and warehouse space from them and a joint management company for the common areas of separately built facilities in Taiwan, but none of them states that Ablecom and Compuware are located inside Supermicro's factory complex. ³

analysisIn its August 2024 report the short seller Hindenburg Research called Supermicro's dealings with Ablecom and Compuware, which it described as controlled by Charles Liang's brothers, oddly circular: Supermicro provides components that the two companies assemble and sell back to it, they rent warehousing and factory space to it, together they had been paid $983 million over three years, and about 99.8% of Ablecom's and 99.7% of Compuware's exports to the United States since 2020 went to Supermicro. The payment total and export shares come from the report's own reading of trade records that are not among the records reviewed. Supermicro's filings themselves disclose both companies as related parties, the component, warehousing and lease arrangements, the purchase amounts and that sales to Supermicro make up a substantial majority of each company's net sales. Supermicro's Special Committee concluded in December 2024 that the related parties identified in the report had been fully disclosed as required, were not required to be disclosed or, in one case, had become a related party during fiscal 2024 and would be disclosed in the next annual report. ^{4 1 5}