Super Micro Will Move Server Production Out of China

Server manufacturer Super Micro has been on the defensive since last year when a bombshell report from Bloomberg claimed the company’s hardware had been compromised by Chinese spies. While those charges remain unsubstantiated, the company has announced that it will move production out of China to assuage concerns from its customers. Super Micro will also expand its in-house manufacturing capabilities to further improve security.

The original Bloomberg report from October 2018 claimed that security teams at an unnamed US telecom had discovered “manipulated hardware” on Super Micro server motherboards. Bloomberg reported that Chinese agents had implanted surveillance chips via a Guangzhou manufacturing facility, and Super Micro had sent the affected servers to customers like Amazon and Apple, which later detected the spy chips.

Not long after the report, Super Micro denied that it had ever encountered such an issue with its motherboards. Apple and Amazon also came out to say that the report was untrue. Super Micro even hired a third-party firm to independently audit its operations. That investigation found no evidence to support the Bloomberg report. However, the publication has stood by the story and has provided no additional information.

Super Micro will not be alone in moving its server business out of China. In 2017, about 90 percent of server motherboards were manufactured in China. In 2018, that figure dropped to under 50 percent. It’s not clear if security concerns have fueled the move, but server hardware would present a tempting target for espionage.

Bloomberg never clarified several important aspects of its report. We don’t even know if the visuals were mockups or real compromised hardware, but Super Micro has still felt the sting.

Even though the Bloomberg report has never been substantiated, and the original claims were rather vague and suspicious, Super Micro has felt the impact. Its Q1 sales were down 10 percent this year, even as the overall server business has grown. It’s still the number three server manufacturer (after HP and Dell), but analysts project that it could drop down to number four.

US-based customers have asked the firm to only supply them with hardware manufactured outside of China. So, it’s easier to just stop using Chinese manufacturing. The firm recently broke ground on a $2 billion manufacturing facility in Taiwan, and it’s expanding its operation in the US. Since these are enterprise products, Super Micro’s customers should be less sensitive to the resulting price increases.

Now read:

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