Through the looking glass: Questionable facts may have caused severe damage to Super Micro's brand reputation and are now causing a relocation of motherboard manufacturing. China once produced the vast majority of all server motherboards, but will soon be responsible for less than half.
Last October Bloomberg published a report claiming that minuscule spy chips were planted on Super Micro motherboards through a supply chain infiltration. Heavy weight players using the server motherboards include Apple and Amazon, both of which found no evidence of such claims.
Even though there has been no evidence found in independent investigations to date, Super Micro is now moving their production out of China to make its customers happy. As a result of the alleged spy chips, Super Micro has faced difficulty making sales to select US customers and those with ties to government.
Unsurprisingly, China used to have a stronghold on production of server-grade components. In 2017, nearly 90 percent of the 13.9 million server motherboards produced were from the red nation. In 2018, that number drastically fell to just 50 percent of the 15.2 million boards produced globally.
Aside from asking partners to relocate, Super Micro is also building out its own production capabilities. The goal of internal expansion is to eliminate the perception of susceptibility to any future attacks. Most of Super Micro's internal manufacturing facilities handle assembly of servers, while contract manufacturers are often handling assembly of motherboards. Rising tariffs are also another reason for Super Micro to move operations.
Expansions include a new $65 million factory in northern Taiwan, located in the city of Taoyuan. There are also planned expansions within Silicon Valley, although specific details have not yet been shared.
After all of the negative press Super Micro has received as a result of the Bloomberg report, the company's sales have fallen nearly 10 percent during the first quarter. There is also a strong possibility that Super Micro will slide from the third largest server maker to the fourth slot.