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Allegations of Chinese spy chips take macro toll on Super Micro shares


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Allegations of Chinese spy chips take macro toll on Super Micro shares

Shares in Super Micro Computer Inc. plunged to record lows during the week ended Oct. 5, after a report alleged that Chinese spies infiltrated some of the company's data servers, which were then distributed to tech giants Apple Inc. and Inc. Super Micro, Apple and Amazon have all strongly denied the claims asserted in the article.

Super Micro Computer, a San Jose, Calif.-based hardware component supplier, lost nearly half of its market value on Oct. 4 after Bloomberg Businessweek reported that Chinese players in 2015 implanted tiny chips on motherboards supplied by the firm. Some products from Apple and Amazon that contained Super Micro components were impacted by the breach, the report added.

Citing interviews with unnamed government and corporate sources, the outlet said Chinese spies had targeted 30 U.S. companies, including Apple and Amazon, in the hardware attack. The U.S. Federal Bureau of Investigation reportedly opened a probe into the attack once a third-party found the extra chip in connection with Amazon Web Services Inc.'s acquisition of Elemental Technologies Inc. The chip was purportedly found on Elemental servers that had been assembled by Super Micro.

In a statement to S&P Global Market Intelligence, an AWS spokesperson denied the allegations. "As we shared with Bloomberg Businessweek multiple times over the last couple months, at no time, past or present, have we ever found any issues relating to modified hardware or malicious chips in SuperMicro motherboards in any Elemental or Amazon systems."

Similarly, Apple said in its own Oct. 4 online statement, "On this we can be very clear: Apple has never found malicious chips, 'hardware manipulations' or vulnerabilities purposely planted in any server." Super Micro too said it has "never found any malicious chips, nor been informed by any customer that such chips have been found."

Apple noted a 2016 incident in which it discovered an infected driver on a single Super Micro server in an Apple lab. "That one-time event was determined to be accidental and not a targeted attack against Apple," the company said.

All three companies added they are not engaged in an investigation with the federal government. "We are not aware of any investigation by the FBI, nor are our contacts in law enforcement," Apple said.

The report caught the attention of lawmakers on Capitol Hill. An aide to the House Homeland Security Committee told S&P Global Market Intelligence that the committee is currently looking into the issues raised in Bloomberg Businessweek's report.

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Super Micro's stock fell by as much as 45% in Oct. 4 trading, closing the session down 41%, to $12.60. As of midday Oct. 5, the company's shares were trading at $11.65, down 43% for the week.

Apple's shares were trading at $224.07 midday Oct. 5, down less than 1% from their Sept. 28 close; Amazon's shares were down more than 6%, trading at $1,875.15 per share.

Elsewhere in the technology, media and telecommunications sector, Facebook Inc. shares slid slightly during the week.

The social media giant recently revealed that an attack exposed the personal information of nearly 50 million users. Facebook's engineering team found that attackers exploited a weakness in the company's code involving its "View As" feature, which allows people to see what their own profile looks like to others on the site.

Management said it fixed the vulnerability and prompted affected users to reset their passwords. However, Facebook has yet to determine the identity or motives of the attackers and whether any of the affected accounts were misused.

Analysts said the breach should have a minimal impact on Facebook's user trends and revenue, but they note it highlights larger concerns around the firm's approach to privacy.

Forrester Research analyst Jeff Pollard, who specializes in security and risk, said in a report that Facebook must "commit to a superstar security leader," who will hold the company accountable for its privacy promises.

Likewise, Evercore ISI analyst Anthony DiClemente said in a note that the breach "highlights the vulnerability of the platform," making it all the more important for Facebook to "aggressively defend itself from bad actors."

As of midday Oct. 5, Facebook's stock was trading at $157.13, down more than 4% for the week.

Following the trend set by its fellow players in the technology space, Microsoft Corp. shares were also down this week, despite the company's release of a handful of new Surface devices.

The company on Oct. 2 unveiled a new Surface Pro 6; Surface Laptop 2; Surface Studio 2; and Surface Headphones. The headphones, according to a CNET review, were a surprise from the company and were secretly developed in-house at the company over the course of three years. Priced at approximately $350, they are designed to compete with similar premium headphones from Bose and Sony.

Greg Potter, an analyst with Kagan, a media research group within S&P Global Market Intelligence, said in an interview that the new devices will play a key role in giving Microsoft an edge against competitors including Apple, HP Inc. and Dell Technologies Inc.

Microsoft stock was trading at $111.52 midday Oct. 5, down more than 2% for the week.