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The Small Chip by China That is Causing a Big Disruption in the U.S

By Imperial College Investment Society

An article by Alexander Koh a member of the society. Please note that the below article was not written by a committee member of Imperial College Investment Society, and hence does not necessarily reflect its views.
China allegedly used microchips to compromise the digital security of over 30 U.S. Companies including tech giants Amazon and Apple.
Super Micro Computer Inc. is a Taiwanese-American founded Technology Company based in the U.S. In a recent report by Bloomberg Businessweek, they posit that Chinese Intelligence has infiltrated the U.S. technology supply chain at the hardware level. This was instrumented by forcing factories in China to add tiny microchips in server motherboards manufactured for Super Micro, one of the world’s biggest supplier of server motherboards for tech giants like Apple and Amazon. Amidst cyber warfare and software attacks dominating headlines as of late, the well-instrumented attack at the fundamental hardware would have far-reaching and devastating consequences. The hardware infiltration was discovered during a potential acquisition of Elemental Technologies - a start-up company specialising in video compression software - by Amazon.
In late 2015, during a routine testing of one of the Elemental Technologies’ servers which were assembled by Super Micro, a small microchip was found within the servers’ motherboard despite it not being part of the boards’ original design. Amazon then reported the case to the U.S. authorities that launched their own investigations in the matter. It was then discovered that during the manufacturing and assembling stage in China, small microchips were inserted into server motherboards intended for Super Micro.
In doing so, these microchips create a malicious backdoor for the Chinese to infiltrate the server and send stolen data back. Moreover, with certain U.S. military networks linked up to these servers, obtaining such high-value information could be an intended aim for China.
Super Micro and Tech giants Amazon and Apple have denied any form of external hardware being planted in their servers. However, anonymous insiders within Apple, Amazon, Super Micro and senior national security officials have confirmed comprises within U.S. Tech Supply Chain safety, with China being the likely culprit of the latest round of tampering of critical technology hardware bound for the U.S.
Nevertheless, the ramifications from the revelation have been demonstrated. Following the attack, Super Micro has since suffered a fall in their stock prices by over 40 per cent, with a 3.5% drop in share prices of Apple (AAPL) and a 4.5% drop in share prices for Amazon (AMZ) the day after Bloomberg’s report.

Writer's Opinion
Although no data has been known to be stolen, the fact of the matter remains that China’s insidious aim to instrument a long-term back-door access to sensitive consumer and corporate data is a growing concern within the Tech Supply Chain. Cyber espionage has always been a dark yet devastating instrument used by various state agents to illicitly obtain information for nefarious purposes. This has since fuelled growing concerns towards cybersecurity, particularly affecting the outlook for FAANG (Facebook, Apple, Amazon, Netflix & Google) stocks. While the collective impact for FAANG stocks to the global market is undeniable, the susceptibility of these stocks to cyber espionage incidents is apparent, particularly after such an incident.
Moreover, in the recent spate of cyber espionage attacks between U.S., E.U., Russia and China, this has since fuelled a growing interest for cybersecurity stocks within the investors’ circle. Nevertheless, for investors keen on riding this trend, they should be mindful that the valuation for U.S. Tech stocks seems to be overstretched.