Lenovo, ZTE tumble as investors fret over impact of China’s hack report

HONG KONG (Reuters) – Shares in Lenovo Group and ZTE Corp tumbled on Friday, hurt by worries about overseas sales after Bloomberg reported that systems of many U.S. firms had been infiltrated by malicious computer chips inserted by Chinese spies.

The Lenovo logo is seen in this illustration photo January 22, 2018. REUTERS/Thomas White/Illustration

Bloomberg Businessweek cited 17 unidentified sources from intelligence agencies and business that Chinese spies had placed computer chips inside equipment used by about 30 companies and multiple U.S. government agencies, which would give Beijing secret access to internal networks.

Apple Inc and Amazon.com Inc, named as being among the U.S. companies that had been subject to the attack, denied the report. Super Micro Computer Inc, which Bloomberg said was the supplier of server boards that contained the malicious chips, also denied the report.

The report did not say any Chinese tech firms were involved in the attack. But Lenovo shares plunged 15 percent on fears that consumers and businesses may become reluctant to buy Chinese tech goods.

“Super Micro is not a supplier to Lenovo in any capacity. Furthermore, as a global company we take extensive steps to protect the ongoing integrity of our supply chain,” Lenovo said.

Daiwa Research said: “If the hacking concern keeps snowballing, the potential impact on Lenovo could be substantial.” It estimates Lenovo earns over a fifth of its revenue from the United States.

FILE PHOTO: The logo of Chinese telecommunications equipment maker ZTE is seen outside the ZTE R&D building in Shenzhen, China April 27, 2016. REUTERS/Bobby Yip/File Photo

Chinese telecoms equipment maker ZTE, whose Hong Kong-listed shares fell 11 percent, declined to comment.

The IT hardware sector sub-index on the Hong Kong stock exchange plunged 4.7 percent, as investors fretted over the impact of the hack report at a time when the industry is already reeling from an intensifying China-U.S. trade war.

“This could prove a death blow to China’s ambitions to leap up the value-chain by 2025 as Western markets are likely to slam shut on the likes of Huawei [HWT.UL], ZTE, etc,” Michael Every, a senior Rabobank strategist, said in a note to clients.

“Taken together with the imposition of 25 percent tariffs by the U.S. … this will only accelerate a move of the electronics supply chain out of China and into Mexico,”

Huawei Technologies declined to comment.

The Bloomberg report said a unit of the Chinese People’s Liberation Army infiltrated the supply chain of Super Micro Computer to plant the malicious chips.

China’s Ministry of Foreign Affairs did not respond to a request for comment. Beijing has previously denied allegations of orchestrating cyber attacks against Western companies.

Reporting by Sijia Jiang and Donny Kwok in HONG KONG and Vidya Ranganathan in SINGAPORE; Editing by Miyoung Kim, Edwina Gibbs and Himani Sarkar

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