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What happened
Actions of Super micro computer (NASDAQ: SMCI) were completely destroyed today, down 43% at 2:20 pm. EDT, after Bloomberg issued an explosive report, claiming that the company's server boards had been the subject of a malicious hardware attack. The Chinese government allegedly installed a malicious chip used for espionage purposes.
So what
Super Micro is one of the major players in the server card market and, like many technology companies, outsources manufacturing to subcontractors located in China. Some of these subcontractor manufacturers hire subcontractors when the volume of orders is high, and one unit of the Chinese army could have forced subcontractors to change the design of the cards to include the tiny spy chip, which is about the size of a sharp pencil. The chip could then give remote access to malicious attackers, among other functions.
Source of the image: Getty Images.
These cards were then sold to a wide range of client companies, valued at nearly 30 companies, including a company acquired by Amazon in 2015, as well as Apple. Amazon, Apple, and Super Micro have strongly denied many of the report's findings. Bloomberg says the US survey on the situation is still ongoing.
Now what
This news comes at a time when Super Micro shares were recently removed from the list after failing to meet Nasdaq's registration requirements again. The Company has not yet filed Form 10-K for the fiscal year ended June 30, 2017, nor any subsequent quarterly filings. The shares are still trading at the counter.
Super Micro investors must read the report in its entirety, as it contains extremely disturbing allegations that have huge implications for national security and affect government agencies and many of the largest US companies. The report likely triggered a series of lawsuits by shareholders, which will only add to Super Micro's growing legal difficulties.
John Mackey, CEO of Whole Foods Market, an affiliate of Amazon, is a board member of The Motley Fool. Evan Niu, CFA holds shares of AAPL. The Motley Fool owns shares and recommends AMZN and AAPL. The Motley Fool offers the following options: $ 150 long calls on AAPL in January 2020 and short calls of $ 155 on AAPL in January 2020. The Motley Fool has a disclosure policy.
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