The Bloomberg report claims that the rice-sized chips were hidden on server motherboards produced by San Jose-based firm Super Micro. Almost all the critical parts of a server are made and assembled in China or Taiwan, and China's espionage operation has targeted the tech industry before, such as in 2010 when hackers believed to be working on behalf of the Chinese government infiltrated Google.
According to the report, the tiny chips were implanted in server motherboards from Supermicro, a publicly traded company in San Jose, California, that a former USA intelligence official described to Bloomberg as "the Microsoft of the hardware world".
Super Micro Computer shares fell 47 per cent to $US11.20 in Pink Sheet trading.
However, it is also completely possible that the Bloomberg report is wrong or at least not completely factually correct.
The report also quoted denial of the reporting by Amazon Web Services, a cloud-services subsidiary of Amazon, which in 2015 acquired a company, Elemental, whose servers reportedly were affected by the Chinese operation.
"We remain unaware of any such investigation", said Super Micro. "We are not aware of any customer dropping Super Micro as a supplier for this type of issue". The company later removed all of the Super Micro servers after discovering the chips, Bloomberg reported.
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Supermicro could not immediately be reached for comment, but Bloomberg said the firm denied any knowledge of the espionage or investigation. Upon the discovery, Amazon reportedly alerted US authorities, which sent "a shudder through the intelligence community", Bloomberg wrote.
As you might expect, Apple has denied the incident. Apple had reportedly bought around 7,000 Super Micro servers when its security teams discovered the chips. The 2015 incident reportedly sparked an ongoing, top-secret federal investigation, which so far has revealed "the chips allowed the attackers to create a stealth doorway into any network that included the altered machines", Businessweek reports.
Amazon, in a statement published by Bloomberg, said: "We've found no evidence to support claims of malicious chips or hardware modifications". However, a total of 17 individuals claiming to have deep internal knowledge of both Apple and Amazon claim that the reasoning behind the removal of Supermicro systems was due to the discovery of exceptionally tiny spy chips. "Apple has never found malicious chips, "hardware manipulations" or vulnerabilities purposely planted in any server", the company said.
The report comes amid increased concerns that foreign intelligence agencies infiltrating United States and other companies via so-called "supply chain attacks", particularly from China where multiple global tech firms outsource their manufacturing. We also want them to know that what Bloomberg is reporting about Apple is inaccurate.
The U.S. and China are locked in a bitter and escalating trade war, in which hundreds of billions of U.S. and Chinese products are under tariff.