Date
16 October 2018
Supermicro shares took a pounding after a media report suggested that Chinese spies were able to add tiny surveillance chips in server motherboards from the company's China factories. Photo: Supermicro
Supermicro shares took a pounding after a media report suggested that Chinese spies were able to add tiny surveillance chips in server motherboards from the company's China factories. Photo: Supermicro

Why the China ‘spy chip’ report is not totally convincing

US Vice President Mike Pence delivered a wide-ranging speech to step up attack on China last Thursday, leading to the impression that US-China relations are deteriorating further rapidly.

Meanwhile, Bloomberg Businessweek published a report saying that China may have installed tiny surveillance chips on motherboards built by Supermicro Computer, a Nasdaq-listed Taiwanese server manufacturer.

Supermicro sold server motherboards compromised by Chinese spies to major US tech firms including Apple and Amazon as well as the Department of Homeland Security and Central Intelligence Agency, according to the report.

The tiny chip is said to enable Chinese hackers to steal commercial, political and military secrets from American companies and government organizations.

Apple, Amazon and other major US firms have denied the allegations reported by Bloomberg, while US government agencies have yet to respond. So far, no company has confirmed to be affected by the so-called spy chips.

Routers supplied by Huawei and ZTE to the US market have long been criticized for having coding loopholes, which could be secretly modified by Chinese intelligence agencies. But such allegations have yet to find any solid evidence.

Given that this tiny chip can actually be easily visible to human eye, how could major US tech companies and leading government agencies have missed it?

Though Bloomberg cited 17 unnamed sources from intelligence and commercial organizations, is it the case that the situation may have been exaggerated and that the Bloomberg reporters didn’t have the technical expertise to verify the allegations?

Even if the report is true, there is the possibility that the actual number of servers involved might be rather limited.

No matter what, the short-term damage to the market value of Supermicro was huge as the Taiwanese firm saw its share price slumping over 40 percent last Thursday.

Other Chinese tech stocks such as Lenovo (00992.HK), ZTE, AAC Technologies (02018.HK) and SMIC (00981.HK) also suffered heavy sell-offs.

Message to investors: gear up for more volatility as US and China tensions escalate.

This article appeared in the Hong Kong Economic Journal on Oct 8

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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