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October 4, 2018 | China Infiltrated 30 US Companies Including Apple and Amazon with Hardware Hack

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Amazon discovered a hardware hack while testing servers supplied by a Chinese company. Apple was hit as well.

Bloomberg has a fascinating report on how China used a tiny chip to infiltrate U.S. companies. The attack by Chinese spies reached almost 30 U.S. companies, including Amazon and Apple, by compromising America’s technology supply chain, according to extensive interviews with government and corporate sources.

Please consider The Big Hack.

In 2015, Amazon.com Inc. began quietly evaluating a startup called Elemental Technologies, a potential acquisition to help with a major expansion of its streaming video service, known today as Amazon Prime Video. Based in Portland, Ore., Elemental made software for compressing massive video files and formatting them for different devices. Its technology had helped stream the Olympic Games online, communicate with the International Space Station, and funnel drone footage to the Central Intelligence Agency. Elemental’s national security contracts weren’t the main reason for the proposed acquisition, but they fit nicely with Amazon’s government businesses, such as the highly secure cloud that Amazon Web Services (AWS) was building for the CIA.

In late spring of 2015, Elemental’s staff boxed up several servers and sent them to Ontario, Canada, for the third-party security company to test, the person says.

Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design. Amazon reported the discovery to U.S. authorities, sending a shudder through the intelligence community. Elemental’s servers could be found in Department of Defense data centers, the CIA’s drone operations, and the onboard networks of Navy warships.

The chips on Elemental servers were designed to be as inconspicuous as possible, according to one person who saw a detailed report prepared for Amazon by its third-party security contractor, as well as a second person who saw digital photos and X-ray images of the chips incorporated into a later report prepared by Amazon’s security team. Gray or off-white in color, they looked more like signal conditioning couplers, another common motherboard component, than microchips, and so they were unlikely to be detectable without specialized equipment.

This system could let the attackers alter how the device functioned, line by line, however they wanted, leaving no one the wiser. To understand the power that would give them, take this hypothetical example: Somewhere in the Linux operating system, which runs in many servers, is code that authorizes a user by verifying a typed password against a stored encrypted one. An implanted chip can alter part of that code so the server won’t check for a password—and presto! A secure machine is open to any and all users. A chip can also steal encryption keys for secure communications, block security updates that would neutralize the attack, and open up new pathways to the internet.

Tiny Chips Disguised as Couplers

Big Hack

Satan’s Bargain

Over the decades, the security of the supply chain became an article of faith despite repeated warnings by Western officials. A belief formed that China was unlikely to jeopardize its position as workshop to the world by letting its spies meddle in its factories. That left the decision about where to build commercial systems resting largely on where capacity was greatest and cheapest.

You end up with a classic Satan’s bargain,” one former U.S. official says. “You can have less supply than you want and guarantee it’s secure, or you can have the supply you need, but there will be risk. Every organization has accepted the second proposition.”

Bloomberg notes there was a small, invite-only meeting in McLean, Va., organized by the Pentagon to discuss these attacks. “Attendees weren’t told the name of the hardware maker involved, but it was clear to at least some in the room that it was Supermicro.”

No Commercially Viable Way to Detect Attacks

In the three years since the briefing in McLean, no commercially viable way to detect attacks like the one on Supermicro’s motherboards has emerged—or has looked likely to emerge. Few companies have the resources of Apple and Amazon, and it took some luck even for them to spot the problem. “This stuff is at the cutting edge of the cutting edge, and there is no easy technological solution,” one of the people present in McLean says. “You have to invest in things that the world wants. You cannot invest in things that the world is not ready to accept yet.”

The report is fascinating as well as scary. 30 US corporations were hit.

Hardware chips can do virtually anything. These tiny chips communicated to external servers and received instructions back from them.

The report did not say what information was stolen. Likely, no one even knows.

Mike “Mish” Shedlock

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October 4th, 2018

Posted In: Mish Talk

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