China planted spy chips in computers from Portland-based Elemental, Bloomberg reports

By By Mike Rogoway, The Oregonian, Portland, Ore.

Computers made for Portland startup Elemental Technologies contained a tiny, mysterious “stealth” chip which had been planted during production overseas to help China spy on American companies and intelligence agencies, according to a 5,000-word investigation on the cover of Bloomberg Businessweek magazine.

Thursday’s report says Amazon discovered the spy chips in 2015, when it was evaluating the possibility of buying Elemental. (Amazon did, in fact, buy the company for $296 million.)

Amazon reported the discovery to the U.S. government, which ultimately concluded the spy chips had been inserted into servers assembled by a San Jose, California, company, Super Micro Computer, that contracted with Chinese manufacturers to assemble technology for Elemental and other clients.

The spy chips infected nearly 30 companies, according to Bloomberg, including a bank, government contractors and Apple.

“The chips had been inserted during the manufacturing process, two officials say, by operatives from a unit of the People’s Liberation Army,” Bloomberg reported. “In Supermicro, China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies.”

Elemental’s technology enables video streaming over the internet. Its customers include major broadcasters, ESPN, Comcast and HBO among them, as well as some defense clients.

Bloomberg’s report is based on multiple, unnamed sources within the U.S. intelligence community. It says American authorities worked under both the Obama and Trump administrations to counter the threat from the infected chips.

Nothing in Bloomberg’s report suggests Elemental was aware that Supermicro had been compromised. The investigation portrays Elemental as one of many victims of the attack and says its computers were central to the intrusion’s discovery.

Amazon and Apple deny aspects of Bloomberg’s report.

“As we shared with Bloomberg BusinessWeek multiple times over the last couple months, at no time, past or present, have we ever found any issues relating to modified hardware or malicious chips in SuperMicro motherboards in any Elemental or Amazon systems,” Amazon said in a written statement Thursday. “Additionally, we have not engaged in an investigation with the government.”

Supermicro is now among the world’s largest motherboard manufacturers, according to Bloomberg.

Elemental, now AWS Elemental, continues to operate as an Amazon subsidiary and employs a few hundred people in downtown Portland. It did not immediately respond to a request for comment.

Bloomberg’s report notes that infecting electronics hardware could be a particularly effective way for spies to build back-door to access computer systems. But it reports that authorities had thought China would be unlikely to jeopardize its role as a key global manufacturer by compromising products made there.

Three Portland engineers, led by entrepreneur Sam Blackman, founded Elemental in 2006. It became one of the most successful of a new generation of Oregon startups and helped spark a high-tech renaissance in downtown Portland. Blackman, a rising star in Portland’s business community, died unexpectedly last year at age 41 of sudden cardiac arrest.

This article provided by NewsEdge.