A substance trapped inside IC packages that enables them to function (also called blue smoke; this is similar to the archaic phlogiston hypothesis about combustion). Its existence is demonstrated by what happens when a chip burns up — the magic smoke gets let out, so it doesn't work any more. See smoke test, let the smoke out.

Usenetter Jay Maynard tells the following story: “Once, while hacking on a dedicated Z80 system, I was testing code by blowing EPROMs and plugging them in the system, then seeing what happened. One time, I plugged one in backwards. I only discovered that after I realized that Intel didn't put power-on lights under the quartz windows on the tops of their EPROMs — the die was glowing white-hot. Amazingly, the EPROM worked fine after I erased it, filled it full of zeros, then erased it again. For all I know, it's still in service. Of course, this is because the magic smoke didn't get let out.” Compare the original phrasing of Murphy's Law.