Managing Director, Zero One, Zero One

Vincent Fernando, CFA

Managing Director, Zero One

Equity Bottom-Up

Taiwan Semiconductor (TSMC) - ADR / Equity Bottom-Up

<ul>
<li>The US Commerce Department is likely to expand China restrictions for the sale of chips and chip manufacturing equipment.</li>
<li>Impact for major Taiwan-listed suppliers appears minimal so far; Inventec is one name with potential exposure.</li>
<li>Not Made in China: More signs of shift as Tata is preparing a JV with Wistron to produce iPhones and Taiwanese companies look to Southeast Asia and the USA.</li>
</ul>


The US Commerce Department is likely to expand China restrictions for the sale of chips and chip manufacturing equipment.
Impact for major Taiwan-listed suppliers appears minimal so far; Inventec is one name with potential exposure.
Not Made in China: More signs of shift as Tata is preparing a JV with Wistron to produce iPhones and Taiwanese companies look to Southeast Asia and the USA.


Taiwan Tech Weekly: US Restrictions on Tech Sales to China to Expand

Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

Ingenuity

Our focus is exclusively on in-depth research & consulting in the broader semiconductor industry. We focus on the key players, namely Intel, Micron, Qualcomm, Apple, Samsung, NVIDIA, AMD, TSMC & Global Foundries - as well as some of the lesser known, but nonetheless critical, companies such as ASML (for EUV), Mellanox, Cavium, Xilinx etc. We specialise in their products, roadmaps, process technologies, competitive advantages & threats etc. We also help our clients understand the implications of new and emerging technologies, e.g. 3D X-Point, 3D NAND, Carbon Nanotubes, Autonomous Driving, Graphene, Silicon Photonics, Wafer-Level Optics, Artificial Intelligence, FPGA, GPU, ASIC etc. 

Semiconductor Analysis & Research

Thematic (Sector/Industry)

On October 4'th last week, Bloomberg published an <a href="https://www.bloomberg.com/news/features/2018-10-04/the-big-hack-how-china-used-a-tiny-chip-to-infiltrate-america-s-top-companies" target="_blank">article</a> alleging that server motherboards manufactured in China by US-headquartered <a href="https://www.smartkarma.com/entities/7921" target="_blank" data-smartkarma-citation="entities:7921:1">Super Micro Computer</a>, had been compromised by agents acting on behalf of the Chinese government and that the those components found their way into the data centers of high profile clients such as <a href="https://www.smartkarma.com/entities/666" target="_blank" data-smartkarma-citation="entities:666:1">Apple</a> and <a href="https://www.smartkarma.com/entities/409" target="_blank" data-smartkarma-citation="entities:409:1">Amazon</a>. Supermicro, whose stock was delisted from the NASDAQ earlier this month due to accounting irregularities and currently trades OTC, went into freefall with its share price collapsing from $21.40 at the open to a low of $8.59 during midday trading. While Supermicro has since recovered slightly to close at $12.40 on October 5't'h, the revelations triggered a broad sell-off in the technology sector has now persisted for two consecutive days. Asian markets were also not immune, with HK-listed Lenovo down some 25% at one stage the following day on fears of its exposure due to its China-based server manufacturing operations. While the Bloomberg report is both comprehensive and compelling, its claims have been robustly denied Apple, Amazon and Supermicro. In our opinion, while Bloomberg may well have uncovered some disturbing evidence of Chinese cybersecurity activities, we find their conclusions highly suspect on multiple fronts. Firstly, a chip of the complexity required to implement the alleged spy functions would require a minimum of 32 pins and could not be mounted on the motherboard without a complete redesign of the board, something that would be impossible to disguise. Secondly, Supermicro's servers are vulnerable, but by virtue of their own sub-standard security rather than as a result of an elaborate hardware hack of immense complexity and risk. In a nutshell, Chinese hackers did not need to infiltrate Supermicro's supply chain in order to gain backdoor access to their servers. The door was already open with a welcome sign hanging outside. Sorry Bloomberg - you appear to have gotten it wrong!

On October 4'th last week, Bloomberg published an article alleging that server motherboards manufactured in China by US-headquartered Super Micro Computer, had been compromised by agents acting on behalf of the Chinese government and that the those components found their way into the data centers of high profile clients such as Apple and Amazon. Supermicro, whose stock was delisted from the NASDAQ earlier this month due to accounting irregularities and currently trades OTC, went into freefall with its share price collapsing from $21.40 at the open to a low of $8.59 during midday trading. While Supermicro has since recovered slightly to close at $12.40 on October 5't'h, the revelations triggered a broad sell-off in the technology sector has now persisted for two consecutive days. Asian markets were also not immune, with HK-listed Lenovo down some 25% at one stage the following day on fears of its exposure due to its China-based server manufacturing operations. While the Bloomberg report is both comprehensive and compelling, its claims have been robustly denied Apple, Amazon and Supermicro. In our opinion, while Bloomberg may well have uncovered some disturbing evidence of Chinese cybersecurity activities, we find their conclusions highly suspect on multiple fronts. Firstly, a chip of the complexity required to implement the alleged spy functions would require a minimum of 32 pins and could not be mounted on the motherboard without a complete redesign of the board, something that would be impossible to disguise. Secondly, Supermicro's servers are vulnerable, but by virtue of their own sub-standard security rather than as a result of an elaborate hardware hack of immense complexity and risk. In a nutshell, Chinese hackers did not need to infiltrate Supermicro's supply chain in order to gain backdoor access to their servers. The door was already open with a welcome sign hanging outside. Sorry Bloomberg - you appear to have gotten it wrong!

SuperMicro China Hack. Bloomberg's Got It Wrong!

United States

Western Digital Corporation is a global provider of solutions for the collection, storage, management, protection and use of digital content, including audio and video. The Company's products include hard drives, solid-state drives, and home entertainment and networking products.

HP Inc. provides imaging and printing systems, computing systems, mobile devices, solutions, and services for business and home. The Company offers products which includes laser and inkjet printers, scanners, copiers and faxes, personal computers, workstations, storage solutions, and other computing and printing systems. HP sells its products worldwide.

Seagate Technology Holdings Public Limited Company offers computer hardware products. The Company designs, manufactures, and markets hard disk drives for enterprise applications, client compute applications, client non-compute applications, personal data backup systems, portable external storage systems and digital media systems.

NetApp, Inc. provides storage and data management solutions. The Company's storage solutions include specialized hardware, software, and services that provide storage management for open network environments. NetApp  serves enterprises, government agencies, and universities worldwide.

Hewlett Packard Enterprise Company provides information technology solutions. The Company offers enterprise security, analytics and data management, applications development and testing, data center care, cloud consulting, and business process services. Hewlett Packard Enterprise serves customers worldwide.

Pure Storage, Inc. provides enterprise storage solutions. The Company offers flash enterprise arrays for high performance workloads, including server consolidation, virtualization desktop, database, and cloud computing. Pure Storage serves customers throughout the United States.

NCR Corporation manufactures financial transaction machines and other products. The Company produces automated teller machines (ATM), self-checkout and self-service kiosks, point-of-sale workstations and scanners; manufactures printer consumable products; and manages networks and servers for ATMs and kiosks.

Xerox Holdings Corporation operates as a holding company. The Company, through its subsidiaries provides printers, scanners, supplies, and accessories. Xerox Holdings serves health care, insurance, government and retail sectors worldwide.

Avid Technology, Inc. develops, markets, sells, and supports a variety of software and systems for creating and manipulating digital media content. The Company develops and sells digital editing systems and newsroom computer systems, as well as digital audio systems.  Avid's products are used worldwide in production and post-production film, video, and television facilities.

Stratasys Ltd. manufactures three-dimensional printers.  The printers build three-dimensional models by depositing multiple layers of resin one on top of another based on data from three-dimensional computer aided design files.  The Company's products are used by designers, engineers and manufacturers to visualize, verify and communicate product designs.

Canon Inc. is a professional and consumer imaging solutions company and patent-holder of digital imaging technologies. The Company's products include networked multifunction devices, digital and analog copiers, computer peripherals, facsimile machines, image filing systems, camcorders, cameras and lenses, semiconductor, and broadcast and medical equipment.

Quanta Computer Inc. manufactures and markets notebook computers and related peripheral equipment.

Lenovo Group Limited, through its subsidiaries, sells, and manufactures personal computers and handheld devices. The Company also provides Internet services and IT services, and contracting manufacturing business.

FUJIFILM Holdings Corporation develops, sells and services Imaging, Information, and Document Solutions.  Its products include color films, digital cameras, photofinishing products and equipment.  The Group also manufactures medical and graphic art use equipment and materials, FPD materials, and optical devices, and provides services on office copy machines, printers, and related equipment.

NEC Corporation manufactures and markets computers, telecommunication equipment, electronic devices, semiconductors, and software.  The Company's products include printers, modems, cellular phones, plasma display panels (PDP), network systems, memory, integrated circuits (IC), thin film transistor-liquid crystal display (TFT-LCD), and printed circuit boards (PCB). NEC operates worldwide.

Focus Media Information Technology Co., Ltd. engages in media network for advertisements including within cinemas, posters and advertising displays in commercial offices or buildings.

Focus Media Information Technology Co, Ltd. (002027 CH)

Focus Media Information Technology Co, Ltd.

BOE Technology Group Co., Ltd. manufactures display products. The Company produces display panels, sensor devices, and other products. BOE Technology Group supplies its products in mobile phones, tablets, notebooks, monitors, and other fields.

Wiwynn Corporation manufactures computer storage devices. The Company develops and sells servers, storage devices, network systems, and equipment room infrastructure products. Wiwynn markets its products throughout Taiwan.

Wistron Corporation manufactures and markets notebook computers, personal computers, and other related information products.

Inspur Electronic Information Industry Co., Ltd. manufactures and markets computer servers, computer terminal products, electronic products, and telecommunication equipment.  The Company also develops computer software, provides system integration services, and operates in import and export trading.

Inspur Electronic Infmtn Indtry (000977 CH)

Super Micro Computer, Inc. designs, develops, manufactures and sells server solutions based on modular and open-standard x86 architecture. The Company's products include servers, motherboards, chassis, and accessories.

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Super Micro Computer (SMCI US)

Taiwan Tech Weekly: US Restrictions on Tech Sales to China to Expand

Also more signs of shift as Tata is preparing a JV with Wistron to produce iPhones and Taiwanese companies look to Southeast Asia and the USA.

Vincent Fernando, CFA

SuperMicro China Hack. Bloomberg's Got It Wrong!

On October 4'th last week, Bloomberg published an article alleging that server motherboards manufactured in China by US-headquartered Super Micro...

William Keating

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