Server maker Supermicro, based in Fremont, California, is reportedly moving production out of China over customer concerns that the Chinese government had secretly inserted chips for spying into its motherboards.
The claims were made by Bloomberg late last year in a story that cited more than 100 sources in government and private industry, including Apple and Amazon Web Services (AWS). However, Apple CEO Tim Cook and AWS CEO Andy Jassy denied the claims and called for Bloomberg to retract the article. And a few months later, the third-party investigations firm Nardello & Co examined the claims and cleared Supermicro of any surreptitious activity.
At first it seemed like Supermicro was weathering the storm, but the story did have a negative impact. Server sales have fallen since the Bloomberg story, and the company is forecasting a near 10% decline in total revenues for the March quarter compared to the previous three months.
And now, Nikkei Asian Review reports that despite the strong rebuttals, some customers remain cautious about the company’s products. To address those concerns, Nikkei says Supermicro has told suppliers to move production out of China, citing industry sources familiar with the matter.
It also has the side benefit of mitigating against the U.S.-China trade war, which is only getting worse. Since the tariffs are on the dollar amount of the product, that can quickly add up even for a low-end system, as Serve The Home noted in this analysis.
Supermicro is the world’s third-largest server maker by shipments, selling primarily to cloud providers like Amazon and Facebook. It does its own assembly in its Fremont facility but outsources motherboard production to numerous suppliers, mostly China and Taiwan.
“We have to be more self-reliant [to build in-house manufacturing] without depending only on those outsourcing partners whose production previously has mostly been in China,” an executive told Nikkei.
Nikkei notes that roughly 90% of the motherboards shipped worldwide in 2017 were made in China, but that percentage dropped to less than 50% in 2018, according to Digitimes Research, a tech supply chain specialist based in Taiwan.
Supermicro just held a groundbreaking ceremony in Taiwan for a 800,000 square foot manufacturing plant in Taiwan and is expanding its San Jose, California, plant as well. So, they must be anxious to be free of China if they are willing to expand in one of the most expensive real estate markets in the world.
A Supermicro spokesperson said via email, “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. To support our continued global growth, we look forward to expanding in Europe as well.”