Super Micro exiting China manufacture because of spy chip allegations [u]

Posted:
in General Discussion edited May 2
To further deflect allegations made by Bloomberg in 2018 of spy chips inserted in servers used by Apple and other companies, Super Micro is ceasing manufacture in China, and cutting back on reliance of parts generated by Chinese suppliers.




It's now more than six months since Bloomberg made the startling and seemingly nonsense claim that Chinese spy chips have been secretly planted into motherboards used in servers owned by Apple, Amazon and others. The motherboards were made by server manufacturer Super Micro, which alongside every other conceivable source, strenuously denied the allegation.

The Bloomberg story has had serious repercussions for Super Micro.

"US customers and especially government-related clients have asked Super Micro not to supply them with motherboards made in China because of security concerns," says the Nikkei Asian Review, citing "one company executive" as its source.

Reportedly, Super Micro expects an almost 10% decline in revenues for January to March 2019, compared to the previous quarter. Over 60% if its revenue comes from the US, so changes in buying patterns there have significant impact.

As a result, Super Micro has told its suppliers to move production out of China specifically to address these concerns.

"We have been expanding our manufacturing capacity for many years to meet increasing customer demand. We are currently constructing a new Green Computing Park building in Silicon Valley, where we are the only Tier 1 solutions vendor manufacturing in Silicon Valley, and we proudly broke ground this week on a new manufacturing facility in Taiwan," SuperMicro said in a statement to AppleInsider "To support our continued global growth, we look forward to expanding in Europe as well."

Super Micro is expanding its US base and this week also broke ground on a $65 million factory in Taiwan.

Super Micro breaking ground at a new factory in Taiwan (Source: Cheng Ting-Fang)
Super Micro breaking ground at a new factory in Taiwan (Source: Cheng Ting-Fang)


"We have to be more self-reliant [to build in-house manufacturing]," an unnamed Super Micro executive said to the publication, "without depending only on those outsourcing partners whose production previously has mostly been in China."

As well as concerns raised by the seemingly spurious Bloomberg report, Super Micro is seeing an impact from US/China trade dispute.

Bloomberg has yet to comment on Super Micro's move to cease any China production. But then Bloomberg has also yet to comment on Apple's Tim Cook calling the account "100 percent a lie."

The publication did make some moves to re-investigate its story, though that hasn't resulted in either a retraction or a re-confirmation of it.

Co-writer Michael Riley ceased tweeting back in October 2018. when the article first came under fire and then did not write for Bloomberg for five months. He's since contributed to one article about security in March 2019.

His colleague Jordan Robertson similarly ceased tweeting and has not has any content written by him published by Bloomberg since.

Bloomberg stands by its reporting, and is holding it up as some of the best work by the publication. Sometime between publication of the piece and a December 11, 2018 closing date, the publication entered the security article into the American Society of Magazine Editors Awards (ASME).

These awards, called the Ellies, are for the best magazine writing -- and the Bloomberg article did not make the shortlist.

Updated May 2, 12:02 P.M. Eastern Time with a statement from Super Micro to AppleInsider.

Comments

  • Reply 1 of 13
    pujones1pujones1 Posts: 153member
    I’m surprised it took this long. Even if there wasn’t any real issue and the story is false, the specter of it being possible is out there now. With all the news of Chinese state sponsored cyber attacks and the like, I would expect to see more of this behavior from companies. They have to protect the perceived integrity of their business right?

    Then again........ to some that dollar bill just may be more important than any perceived or real cyber security threat.
    leftoverbaconwatto_cobra
  • Reply 2 of 13
    lkrupplkrupp Posts: 7,101member
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    maltzDAalsethtmaycat52
  • Reply 3 of 13
    lkrupp said:
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    Well we have been addict to high margin profits. That is what causes outsourcing to Asia that is not exactly run on democratic principles as opposed to common beliefs.
    chasm
  • Reply 4 of 13
    maestro64maestro64 Posts: 4,570member
    lkrupp said:
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    Well we have been addict to high margin profits. That is what causes outsourcing to Asia that is not exactly run on democratic principles as opposed to common beliefs.
    Actually Apple's 35%+ margins are not high, that is the margins you have to maintain to innovate in the future. If are you down in the 20%+ range you are barely keeping your head above wat and keeping your R&D engine running, If you have no R&D and just sell widgets then you can live nicely with 10%+. 

    Now if you want to take high Margin look at Software company at 60%+ and service companies at 70%+ or Chip companies in the 40% to 50% range and most these companies are not relying on cheap Chinese labor.
    watto_cobra
  • Reply 5 of 13
    jcs2305jcs2305 Posts: 740member
    lkrupp said:
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    Well we have been addict to high margin profits. That is what causes outsourcing to Asia that is not exactly run on democratic principles as opposed to common beliefs.
    Is it Apple's margins, or the cheap labor that allows products to be manufactured and sold at low prices that is the reason for going to China or India as Lkrupp mentioned. Profit comes from this and margins can be maintained more easily,  but I don't think Apple's margins is what drives the outsourcing.
  • Reply 6 of 13
    chasmchasm Posts: 1,545member
    Super Micro should sue Bloomberg for libel and make them prove the story in court, once and for all. Spoiler: Bloomberg would lose because the story was entirely made up.
    watto_cobra
  • Reply 7 of 13
    AppleExposedAppleExposed Posts: 950unconfirmed, member
    And Bloomberg doesn't pay a penny!!

    All these shi* companies that make crap up about Apple should be sued, even if not by Apple/Super Micro etc. by the U.S. government. 
    chasmwatto_cobra
  • Reply 8 of 13
    lkrupp said:
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    Well we have been addict to high margin profits. That is what causes outsourcing to Asia that is not exactly run on democratic principles as opposed to common beliefs.
    It's not really 'high margin profits' it's the fact that:

    1. if you move final assembly to the US you have to import all the modules from Asia.
    2. if you move the module assembly to the US you have to import all the module components from Asia.
    3. If you move the module component manufacture to the US you have to bring the chips in from Asia.
    4. If you move the chip fab to the US...

    You see where this is going.

    Each of these steps is specialized manufacturing, separate from the kinds of manufacture you do to do the final assembly, requiring plants, technologies, and a labor force. That's why Apple attempted to do BTO manufacturing in Utah, but they still had to ship everything to DO that BTO manufacturing from Asia.

    Moving ALL that manufacturing, or shipping the subassemblies or parts from Asia, *substantially* increases the cost of the product, more than the "high margin profits" can cover.

    The *reason* why all the manufacturing is in Asia is because all the manufacturing is in Asia. It's a vertical monopoly.
    edited May 2 watto_cobra
  • Reply 9 of 13
    chasm said:
    Super Micro should sue Bloomberg for libel and make them prove the story in court, once and for all. Spoiler: Bloomberg would lose because the story was entirely made up.
    There are laws in place that protect Bloomberg from this, but those laws shouldn't allow this behavior.

    I agree. It's not fair to have a scammy piece like this hurting the workers and investors in SuperMicro.
    edited May 2 watto_cobra
  • Reply 10 of 13
    bulk001bulk001 Posts: 478member
    Well a lot of companies must have found the claims made by Bloomberg to be credible enough to force changes. That it will bring more jobs back to the US is a bonus. 
  • Reply 11 of 13
    wizard69wizard69 Posts: 12,803member
    lkrupp said:
    Apple really has no choice but to continue to manufacture in China. India is a possibility but it would take a years to develop a trained labor force. There is literally no way for any company to mass manufacture electronic products in the Western democracies because of labor costs. We have become addicted to low prices and are completely dependent now on a totalitarian, communist dictatorship to maintain our first world lifestyles. 
    Baloney, labor is a minor part of a Mac build.   All Apple would need to do is cut their massive margins a bit and USA built Macs could go on sale at the same price.    If you look back a bit the cost of Apple hardware did not go down when they moved to China.   Instead profits went up massively.  Manufacturing in China is all about greed, frankly at the expense of the Chinese people.  
  • Reply 12 of 13
    wizard69wizard69 Posts: 12,803member
    chasm said:
    Super Micro should sue Bloomberg for libel and make them prove the story in court, once and for all. Spoiler: Bloomberg would lose because the story was entirely made up.
    The story isn’t made up.   There is plenty of evidence floating around the intelligence communities that China is in fact taking unprecedented actions to steal and spy on the USA and its important firms.  

    As for what ive heard through other channels, the spying hardware was detected before the hardware was installed.   How true is this I can’t say but it can explain some of cook’s statements.  
  • Reply 13 of 13
    dysamoriadysamoria Posts: 2,152member
    China thinks Taiwan is China...
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