SMART Global Holdings, Inc. (SGH:US, “SGH”) relied on its subsidiary SMART Brazil for 62% of its 2018 revenue. This revenue was only possible because of a tax incentive for which SMART Brazil no longer qualifies. We show that management was not clear with investors about the grave risk Brazil posed to continued SGH profits before it happened and, even more appalling, did not adequately update investors after it happened on July 1, 2019.

SGH management still has not been clear about the severity of the adverse events in Brazil. Our extensive analysis and on-the-ground due diligence in Brazil and India reveal that SGH’s new strategy and recent acquisitions won’t replace that lost profit margin.

One recent SGH acquisition, InForce, had been owned by two SGH directors and Chairman/CEO Ajay Shah, who personally profited $5 million from the deal. Moreover, according to Indian filings that we pulled, SGH paid $12 million, or over 13x sales for this de minimis business that appears to be only accretive to insiders rather than shareholders. This related-party transaction puts a spotlight on Shah’s complete control over SGH. He is Founding Managing Partner of SGH’s controlling shareholder, Silver Lake Sumeru, which with Silver Lake owns over 40% of SGH shares. Shah also sits on one of the two boards that oversee Silver Lake Sumeru’s investment.

SGH’s short life post-IPO can be characterized by aggressive leverage, asset stripping, and cash sweeping, dumping the husk onto public markets. Crippled by the loss of the subsidy in Brazil, SGH is no longer smart money.