Supermicro On China Exit Story: We Have Been Expanding Capacity For Years

Supermicro responds to a new report that the company is moving production out of China to address U.S. customer concerns over security: 'We have been expanding our manufacturing capacity for many years to meet increasing customer demand.'

Server maker Supermicro said the company has been expanding its manufacturing capacity for "many years to meet increasing customer demand" in response to a story stating that it was shifting production out of China to ease U.S. customer concerns over security.

In a statement provided to CRN early Thursday, the San Jose, Calif.-based company did not directly address the central claims of a story by Nikkei Asian Review about the move away from China that cited an unnamed company executive and other industry sources. Instead, the company focused on its manufacturing expansion efforts outside of China, in San Jose, Taiwan and Europe.

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"We have been expanding our manufacturing capacity for many years to meet increasing customer demand," a company spokesperson said. "We are currently constructing a new Green Computing Park building in Silicon Valley, where we are the only Tier 1 solutions vendor manufacturing in Silicon Valley, and we proudly broke ground this week on a new manufacturing facility in Taiwan. To support our continued global growth, we look forward to expanding in Europe as well."

In announcing the expansion on Monday, the company said that its new Building 23 facility in San Jose is the third of five under construction, with a scheduled completion time for the end of 2019. In that announcement, the company said it had also broken ground on a new nine-story building at the Supermicro Asia Tech and Science campus in Taiwan that will expand its production capacity as well as hardware and software research and development.

"As our business continues to rapidly scale with over 1.2 million server and storage systems shipped globally last year, increasing our production capacity and capabilities is vital to keeping up with our rapid growth," Charles Liang, president and CEO of Supermicro, said in a statement. "Building 23 in San Jose, along with the opening of the large new facility at our technology campus in Taiwan, provides the additional capacity and rack scale integration plug and play capabilities to ensure that we can provide the best possible service to our enterprise, data center, channel and cloud customers."

In February, Supermicro reported that it expects second-quarter net sales to reach between $915 million and $925 million, $35 million higher than the top end of the company's previous guidance.

Nikkei's report on Tuesday said that Supermicro is telling suppliers to move production out of China due to cyber espionage concerns from U.S. customers. The reported decision comes after Bloomberg Businessweek reported last October that Chinese spies inserted a malicious microchip into Supermicro servers that were being used by Apple and Amazon Web Services to steal sensitive information. Supermicro, Apple and AWS have strongly refuted the report.

Supermicro isn't the only server maker reportedly moving production out of China over the country's tensions with the U.S. According to Digitimes Reseach cited by Nikkei, the percentage of motherboards made in China dropped to 50 percent last year from 90 percent in 2017.

While the Nikkei report specifically cites security concerns from U.S. customers for Supermicro's move, the report also mentions the broad impact of U.S. tariffs on server components and other goods imported from China, which has resulted in higher prices for customers.

"It must be causing them enough trouble that they're looking at doing it," Dominic Daninger, an executive at Supermicro partner Nor-Tech, said on Wednesday of Supermicro's reported decision, "and I'm sure the things with the tariffs, that's probably not helping matters any."