Long article…but the most disturbing one I’ve read in a long time. We (all of us) are in trouble…
Our dependence on China for electronics has resulted in a terrible situation.
https://www.bloomberg.com/news/features/2018-10-04/the-big-h…
This sounds off topic for this board, but for me it is information as to whether to invest in China at all.
Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
The sky is falling.
🆁🅶🅱
The sky is falling. – RGB
And I’m wearing a foil hat? 
Serious stuff. Very smart people with great focus and great resources wish us ill. But hey… let’s mock it and there will be no problem. LOL
Rob
Rule Breaker / Market Pass Home Fool & STMP/MTH Maintenance Coverage Fool
He is no fool who gives what he cannot keep to gain what he cannot lose.
Wow, that is one scary article!
https://www.bloomberg.com/news/features/2018-10-04/the-big-h…
Thanks for posting. I agree that it sure makes Chinese tech companies exporting to the US a dangerous investment, in the likelihood that the US will place additional restrictions on them! (Which is actionable information).
Saul
LOL, Seemed more like… SPAMMED! All of US
Every forum has this posted. Geeesh. Another “presidential alert”.
We can bemoan, but how constructive is that? And what about our cell phones? Aren’t many of them made in China, or contain chips of Chinese origin!
Lions and tigers and bears… Oh my!
We are so sure that we control our lives… When that belief is threatened we fall to the ground. Oh, how little we know.
No, it’s not serious stuff. It is just a passing vapor.
Thanks for posting. I agree that it sure makes Chinese tech companies exporting to the US a dangerous investment, in the likelihood that the US will place additional restrictions on them! (Which is actionable information).
It’s more complex than just Chinese tech companies exporting to the U.S. This is a supply chain issue, where an “American” manufacturer, Supermicro, was using motherboards that were assembled in China, and that had been designed by a third company, Elemental. Supply chains are global, and can be very complex. It can be exceedingly difficult to detect the sort of tampering of the supply chain that is laid out in the Bloomberg article.
As the article notes, hardware hacks are difficult to execute but the rewards can be large if successful. Hardware hacks and backdoors are nothing new. The “good guys” as defined by us have extensive experience in executing operations of this sort themselves. Of course, given the volume of Chinese manufacturing, along with the tolerance of the surveillance state over there, this will probably be a growing problem going forward.
-Rob
But most Chinese internet businesses talked about on MF (IQ, JD,BIDU,NTES, BZUN, TCEHY…) have their main business in China and have almost none in the US. Those listed are not importing anything in and most services are almost not used here in the US.
tj
But most Chinese internet businesses talked about on MF (IQ, JD,BIDU,NTES, BZUN, TCEHY…) have their main business in China and have almost none in the US. Those listed are not importing anything in and most services are almost not used here in the US.<i>
I agree, but looks like many investors are dumping all Chinese stocks. NIDU, BABA, TCHEHY have all dropped 10% in the last 5 market days. Don’t see any bad news at least for BIDU which I follow except for this perhaps.
“… It can be exceedingly difficult to detect the sort of tampering of the supply chain that is laid out in the Bloomberg article.”
It’s not only a tampering of the supply chain but a change in the original design was effected along the line. However hardware tampering can be more easily detected if you know to look for it. This relates to some control the originator of the design needs to exert over the CM or sub-contractor. The complication is that in the past years more and more design decisions has been outsourced from the simple to the increasingly complex- outsourcing to simple assembly house and teaching them to ODM to OEM.
The US will not give any sensitive technologies to China. The US actively restricts the export of sensitive technologies to China, and the list is long. This always has been the case. In the commercial realm, it has been a bit freer but sooner or later despite the active blocking, they are using various means and they will get the technologies they need to compete. Technologies transfer and diffusion from one geographical area to another has always occurred throughout history. We can always argue about how that happens (and if that is right or wrong from our perspective) but it happens. Clearly we are talking more about a somewhat forced transfer rather than a friendly transfer or diffusion here. Corporations compete and have trade secrets. Countries jostle for position and confront each other. People associate and form different groups. But why can’t we think more about collaboration rather than confrontation?
tj
This is a legitimate and very real threat. The first time that I attempted to bring a stock to this board for consideration, I was trying to find one in the microelectronics industry that I thought was strongly US-based and financially very healthy (and with a very undervalued stock price). This was so that it would be the one poised to take off like gangbusters when the US reached the point at which it needed to shift to “in-country” manufacturing of microelectronics. I suspect that the US will experience this backlash soon (backlash meaning a sudden desire to have “made in the USA” stamped on every microelectronics part). However, the US will have a heck of a time finding a company who can guarantee in-country production. I really don’t think that it exists. (However, if any of you can find one please bring it here! Then all of us on this board will be on to something!)
I cannot remember the company (even though I spent many, many hours researching and collecting data to make Saul proud). Right after I posted, it was announced that the company was being acquired! I guess that means that I was on the right track in terms of financial health and expertise, but I was not on the right track in terms of company longevity. And, although the company had a strong US presence, it had previously acquired many Chinese companies. It also had international manufacturing capabilities. My hope was that it had the US expertise and so would be able to respond with the “made in the USA” model when asked.
It is worth piquing the interest of the smart people of this board. If you can find such a company, please bring it!
I am not an expert in this area, but my job gives my some lose knowledge about the fact that this is a very real problem. Since Warren Buffet would advise investing in companies that “you know” (and I know nothing), I was attempting to connect dots to something legitimate that I sorta know. I sorta failed at it.
I cannot remember the company (even though I spent many, many hours researching and collecting data to make Saul proud). Right after I posted, it was announced that the company was being acquired!
You can click your username just above (next to “Author” on your post), and see the history of your posts on your profile page, to find the name of the company.
According to the “NEW” sticker next to your name, it says you made your first post in the past 60 days. You’ve forgotten the company that you spent many many hours researching just in the last few weeks?
According to the “NEW” sticker next to your name, it says you made your first post in the past 60 days. You’ve forgotten the company that you spent many many hours researching just in the last few weeks?
Ha! Yes, that is a very sad fact of a very stressed-out 60 days (and the tangles in my brain…)
Thank you for the tip. I did as you directed to find my [rookie] posts. The company was XCRA. It was acquired by COHU. Here’s a link to the thread.
https://discussion.fool.com/xcra-33995154.aspx?sort=whole#339951…
Basically I spent all of that time researching, and the operation was big fail. It momentarily defeated me and has delayed my trying again.
The microelectronics threat is real in the sense that microelectronics are easy components to exploit, if that is the desire of someone. This doesn’t mean that every chip in every device needs to come from a trusted source. Someone could exploit something-of-their-choice by using your Granny’s smartphone, but it’s not a significant-enough situation to police. However, I do believe that there certainly exists a niche market in the US that needs microelectronics from a trusted source, and one is very hard-pressed to find such a source. This is what I was attempting to do, but only in so far as I wanted to contribute to the board (and not just lurk here and take stock tips). I really was going around in circles, as XCRA’s expertise is in test equipment (for microelectronic manufacturers) not in chip manufacturing. I just got excited when I found a financially healthy company in the sector with a strong US base and an undervalued stock price. (But COHU found them too.)
Anyway, I’m eating up resources here and potentially wasting other’s time (which I really don’t want to do). This thread got my interest, because it’s where my mind was focused when I was attempting to bring a company to the board. I’m a real novice here and so am not poised (at this moment) to quickly flush out such a company. But if someone on the board is on this same line of thought, my opinion is that if one can find a microelectronic company that has a large moat and a very strong US manufacturing base, it may be the one poised to grow significantly if this “we’re all being attacked/hacked by China/Russia/[insert your own country of choice] via our electronic devices” and we must get back to “made it America” continues to grow in both public and political consciousness.
Super Micro was down as much as 50% today. I see it is still down a bit more than 40% on heavy volume.
In late spring of 2015, Elemental’s staff boxed up several servers and sent them to Ontario, Canada, for the third-party security company to test, the person says.
Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design
Today, Supermicro sells more server motherboards than almost anyone else. It also dominates the $1 billion market for boards used in special-purpose computers, from MRI machines to weapons systems. It’s motherboards can be found in made-to-order server setups at banks, hedge funds, cloud computing providers, and web-hosting services, among other places. Supermicro has assembly facilities in California, the Netherlands, and Taiwan, but its motherboards—its core product—are nearly all manufactured by contractors in China.M
Might it be that some of the SaaS Companies will have to switch out their servers and what $ amount could that entail. Would it be a minimal or significant charge?
AWS refutes the statements made in the Bloomberg article, and sets the record straight in this article:
https://aws.amazon.com/blogs/security/setting-the-record-str…
"Today, Bloomberg BusinessWeek published a story claiming that AWS was aware of modified hardware or malicious chips in SuperMicro motherboards in Elemental Media’s hardware at the time Amazon acquired Elemental in 2015, and that Amazon was aware of modified hardware or chips in AWS’s China Region.
As we shared with Bloomberg BusinessWeek multiple times over the last couple months, this is untrue. 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. Nor have we engaged in an investigation with the government."
Hi Guys, This interesting Off-Topic thread was fun for the first 5 or 10 posts, and useful to make us all aware of the situation, but it is very Off-Topic for our board, so let’s take it elsewhere now.
Thanks for your cooperation.
Saul
https://www.bloomberg.com/news/articles/2018-10-05/tech-wrec…
Lenovo Plunges 23% as Tech Wreck Bleeds Into Asia
By Jeanny Yu
October 4, 2018, 10:04 PM EDT
Lenovo Group Ltd. sank the most in almost a decade after Bloomberg reported that China used a tiny chip in a hack that infiltrated almost 30 U.S. companies.
So sorry if my post was off topic. I don’t understand investment at all. Seriously.
Saul, as I’m not an expert in the tech field, I’m not entirely sure that the post is indeed off-topic.
We have a number of SaaS/cloud companies under discussion. Yes, this is a hardware vs. a software issue… but that software needs the hardware to run.
Short of each of the companies directly coming out and saying, “we’ve never used Super Micro boards in any of our products/internal company infrastructure”, it seems very much on-topic. If that’s happened, I haven’t seen it… and given the stakes, I’m not sure we will (Amazon flatly denies, so either Bloomberg’s sources are lying or sorely uninformed, or Amazon is).
A decent portion of the tech sector has been under rotation for the last month and seems to have trouble shaking the cold it’s currently under. FUD like this isn’t exactly an elixir.
Saul, as I’m not an expert in the tech field, I’m not entirely sure that the post is indeed off-topic. We have a number of SaaS/cloud companies under discussion. Yes, this is a hardware vs. a software issue… but that software needs the hardware to run.
Hi Fletch, this board is for analyzing and discussing individual growth stocks. Whether there was or wasn’t a Chinese chip in Super Micro boards is WAY OFF-TOPIC for this board. If you want to discuss it, I’m sure you will find fellow discussants at the NPI board and others. This is not the place for it. Thanks for your cooperation,
Saul