In this segment from the Motley Fool Money podcast, host Chris Hill and Fool senior analysts Aaron Bush, Ron Gross, and Matt Argersinger discuss a Bloomberg article that makes a rather startling allegation -- that an intelligence branch of the Chinese military has been planting tiny computer chips, the size of a grain of rice, on motherboards being sold to a host of global tech companies. These chips, the article asserts, render the computers easily hackable by China, and would represent a serious security threat, both to corporations and to U.S. government systems.
Setting aside whether it's true -- and all parties are officially denying it so far -- the Fools ponder what such a revelation could do to the tech industry broadly. What if manufacturers start shunning Chinese manufacturers and hardware? How far could the ripple effects go?
A full transcript follows the video.
This video was recorded on Oct. 5, 2018.
Chris Hill: This week, Bloomberg reported that a secret division of the Chinese military has used tiny computer chips to compromise the motherboards of major U.S. tech companies, including Apple and Amazon. Aaron, I should point out that both Apple and Amazon have denied this report. This is one of those interesting things that could possibly get interesting in an ugly way.
Aaron Bush: Yeah, I mean, it's a pretty crazy story once you dig into it. What these microchips allegedly do -- and they're so small, they're like the size of a grain of rice. Allegedly.
Ron Gross: [laughs] They're allegedly the size of a grain of rice?
Bush: Well, we'll see. What they allegedly do is spy, but also allow for changing the operating system on the computers that they're attached to, which opens the door for potential software attacks. So, if you think about this going on, and these tiny microchips being placed in some of the largest motherboard suppliers that go all over the world, yeah, some of that stuff could be widespread already in a lot of our computers and servers.
It's interesting to see Amazon, AWS, for example, deny this. I think there's definitely a lot of investigating going on behind the scenes right now. It's going to be really interesting to see what comes up with that. Earlier in the year, when ZTE got smacked for violating U.S. trade laws, if anything even remotely related to that comes up here, it could cause pretty big shifts in the technology supply chain, moving things out of China, much further oversight. Yeah, it'll be really interesting to watch it unfold.
Hill: One of the potential ripple effects here is probably if manufacturers start to move out of China, presumably, Matty, they're moving to places that are more expensive. Those costs probably get passed on to the consumer.
Matt Argersinger: That's right. The one scary part of this to me is that it seems so logical. We haven't really thought of a possibility like this in the past just because we have been so dependent on China for manufacturing. So, yeah, taking it out of China, of course, is a possibility from this. But, man, the margins that companies like Apple have been enjoying for decades could be a lot tighter.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Amazon and Apple. Chris Hill owns shares of Amazon. Matthew Argersinger owns shares of Amazon. Ron Gross owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.