Nvidia, the world’s largest maker of artificial intelligence chips, is at the heart of a new round of U.S. tech sanctions targeting China.
Nvidia noted in an SEC filing that the U.S. government had imposed new export restrictions on two of its most advanced AI chips to China, including Hong Kong, its second-largest market after Taiwan making up 26% of its revenues in 2021.
The ban could cost Nvidia as much as $400 million in potential sales to China in the third quarter, the firm said.
The export control also bars Nvidia from shipping the chips to Russia, though the company said it doesn’t currently sell to the country.
The U.S. government said the move “will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia.” But the ban is in practice crimping a wide array of businesses and organizations using the silicons beyond military purposes.
The two chips in question are the Nvidia A100 and H100 graphic processing units. A100 is designed to provide high-performance computing, storage, and networking capabilities for industries spanning healthcare, finance, and manufacturing, explains Chinese e-commerce and cloud computing giant Alibaba, a user of A100.
H100 is the firm’s upcoming enterprise AI chip that is expected to ship by the end of this year and has part of its production done in China.
Complexities
There’s a silver lining — Nvidia’s engagement with China won’t be completely severed. The U.S. government has granted permission for the firm to keep manufacturing H100 in China, Nvidia said in a later filing, though purchases by Chinese customers will still be restricted.
The updated authorization also allows Nvidia to keep exporting A100 to its U.S. customers with data centers in China through March 1, 2023.
The more ambiguous terms concern the role of Hong Kong, which is included in the original ban. “The U.S. government authorized A100 and H100 order fulfillment and logistics through the Company’s Hong Kong facility through September 1, 2023,” the document reads. It’s unclear whether Chinese customers can access these chips through the former British colony.
Ripple effects
The U.S.’s move to bar China’s access to its high-end technologies has in turn accelerated the latter’s pursuit of independence. Huawei has been doubling down on smartphone chip development ever since Washington put it on an export blacklist over national security concerns in 2019. A swathe of domestic semiconductor startups is netting hefty investments from VCs and government-guided funds.
While China may still be a generation behind in producing the most sophisticated chips, the country is gradually sharpening its edge in lower-end, specialized semiconductors, such as neural processing units meant to boost phone camera capabilities.
The licensing requirement may also trigger an exodus of Nvidia’s China-based talent, which would likely go on to work for domestic alternatives if they weren’t able to relocate overseas. As the firm noted in its filing, the ban “may require the Company to transition certain operations out of China.”
Taiwan’s TSCM, the world’s largest contract chip maker, also stands to lose from the export control as it does a lot of manufacturing for Nvidia.
The Chinese government has condemned the ban, described as “sci-tech hegemony” by foreign ministry spokesperson Wang Wenbin in a regular press conference on Thursday.
“The US seeks to use its technological prowess as an advantage to hobble and suppress the development of emerging markets and developing countries. This violates the rules of the market economy, undermines international economic and trade order, and disrupts the stability of global industrial and supply chains. China firmly rejects it.”
Updated with more analysis.
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