Asia Markets

Apple suppliers' shares fall on the back of report alleging hidden Chinese spy chips

Key Points
  • Shares in Apple suppliers across Asia largely fell on Friday following a report saying Chinese spy chips had been found in hardware used by American companies such as Amazon and Apple.
  • One analyst, however, describes the stock movements as "a bit of a knee jerk reaction."
The Taiwan Semiconductor Manufacturing Co. headquarters in Hsinchu, Taiwan.
Maurice Tsai | Bloomberg | Getty Images

Apple suppliers in Asia saw a broad decline on Friday on the back of a bombshell report that alleged Chinese spy chips were discovered in data center equipment used by Amazon and Apple.

On Friday in Japan, shares of electronic parts maker TDK dropped by 4.79 percent while component supplier Murata Manufacturing declined by 3.9 percent.

Over in South Korea, LG Display fell by 1.84 percent while industry heavyweight Samsung Electronics closed flat despite earlier announcing that its third-quarter operating profit was likely to have risen to a record high.

Declines were also seen in the Taiwanese markets, where major Apple chipmaker Taiwan Semiconductor fell by 1.57 percent and lens maker Largan Precision dropped by 7.28 percent.

The moves in Asia followed a report released on Thursday by Bloomberg BusinessWeek, which alleged that data center equipment employed by Amazon Web Services and Apple could have been vulnerable to spying from the Chinese government as a result of a micro chip being inserted during the equipment manufacturing process.

The chips, which Bloomberg said have been the subject of a top secret U.S. government investigation starting in 2015, were used for gathering intellectual property and trade secrets from American companies and may have been introduced by a Chinese server company called Super Micro that assembled machines used in the centers. Amazon, Apple and Super Micro have disputed the report.

One analyst said, however, that the recent stock moves are unlikely to last long term.

"I think it's a bit of a knee jerk reaction to the news," said Leo Sun, a tech and consumer goods specialist at The Motley Fool, adding that the controversy surrounding Super Micro was "only about server chips, not iPhone components."

Sun also highlighted that Apple's current suppliers were unlikely to be immediately hurt as the company "ended its relationship with Super Micro back in 2016."

Sun did, however, add that the report would likely serve as impetus for the American government to "cite this incident to pressure Apple to move its production back to the U.S. and use U.S. components."

"I doubt Apple will ever comply, since its costs would jump significantly, but it could cause investors to avoid Apple's Asian suppliers until the matter is resolved," he said.

— CNBC's Kate Fazzini contributed to this report.

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