China has reasons to be gleeful at Intel's FUD factor

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(Bloomberg Gadfly) -- The revelation that the world's most esteemed chipmaker is not invincible is undoubtedly bad news for Intel Corp.

It's probably good news for arch-rival Advanced Micro Devices Inc., as fellow Gadfly Shira Ovide points out. Though even that upside may be muted by the fact that AMD chips could be affected by some of the same flaws found in Intel devices.

It's fantastic news for China.

Intel supplies more than 93 percent of the core processors used in the world's laptops and is dominant in desktops and servers, too. According to discoveries made by a team of researchers, outlined by tech publication The Register and since confirmed by Intel, countless chips made by the company have a fundamental design problem.

According to The Register, all computers with Intel chips made in the past decade appear to be affected. Exploitation of that flaw could, in theory, allow hackers to steal sensitive data, such as passwords.

That's where China comes in. You can imagine platoons of Chinese PLA hackers being redeployed to find and leverage this vulnerability before it's patched. I doubt Russian or North Korean security teams would be sitting idly by. And don't expect the National Security Agency to be doing Intel any favors, either. There's now some irony in that company name.

But all this worry may be just FUD. And that's fine for China.

For decades, the nation has been trying to build its semiconductor prowess. It's thrown billions of dollars at trying to build, buy or hire the best chip technology available. Tsinghua Unigroup Ltd., China's semiconductor wunderkind, last year secured $22 billion in state-backed funding so it could "speed the process of technology upgrades and lift our core competitiveness."

Progress, though, has been limited.

Intel sales in China - $14 billion.

Chinese buyers accounted for $14 billion of Intel sales in 2016, ahead even of the U.S. at $13 billion. Admittedly, a lot of that may then have been re-exported in Chinese-made devices.

Discovering that Chipzilla has an Achilles' heel adds context to China's failing attempts to develop leading-edge chips. Psychologically, if not technically, it lowers the bar on what it takes to be the best. It allows the government and its semiconductor industry to believe that maybe they're not so far behind, after all.

Beyond that, though, it's an excuse for the Chinese government to issue directives against buying Intel and instead procure homemade alternatives. No such alternatives exist, really, but it may not be too long before half-decent knock-offs are churned out.

Talk of security risks, regardless of credence, gives China another reason to paint the U.S. and its technology companies as untrustworthy.

For China, the reality of this Intel flaw may end up being unimportant. It's the FUD that matters.

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