US chips restriction creates a ripple for Nvidia

• The new chip restrictions by the US will impact Nvidia’s operations in China. 
• Nvidia currently has chips specifically designed for China. 
• Other chip companies could also be affected by the restriction updates. 

When the US imposed curbs on chip exports to China, Nvidia was still able to continue with the process initially. This was because some Nvidia chips had been designed specifically for the Chinese market.

However, Nvidia’s operations in China may now be over, given the new restrictions announced by the US government. Specifically, the US is imposing tighter controls on the chip supply to China, which targets Nvidia’s A800 and H800 chips. As expected, the main purpose of the restrictions is to prevent China from accessing cutting-edge technology with military uses.

The announcement not only affected Nvidia’s performance in the market but also hit other semiconductor companies. According to US Commerce Secretary Gina Raimondo, the updated rules will increase the effectiveness of the US controls and further shut off pathways to evade restrictions.

Specifically, the Bureau of Industry and Security for the US Department of Commerce’s rules update can be summarized as follows:

• Imposes controls on additional types of semiconductor manufacturing equipment.
• Refines and better focuses the US persons restrictions to ensure US companies cannot provide support to advance China’s semiconductor manufacturing and codifying previously existing agency guidance.
• Expands license requirements for semiconductor manufacturing equipment to apply to additional countries beyond China and Macau, to 21 other countries with which the US maintains arms embargoes.

The new rules tighten measures taken last year that banned the open sale to China of microchips that are crucial to the manufacturing of powerful AI systems such as ChatGPT. Raimondo insisted that the beefed-up curbs were intended to close loopholes and prevent China’s military use of AI.

“It’s true that AI has the potential for huge societal benefit. But it also can do tremendous and profound harm if it’s in the wrong hands and the wrong militaries,” Raimondo told US media, as reported by AFP.

The rules, which come into effect in 30 days, restrict a broader swathe of advanced chips and chipmaking tools to a greater number of countries, including Iran and Russia They also blacklist Chinese chip designers Moore Threads and Biren, Reuters reported.

Semiconductor companies and industry concerns

The Semiconductor Industry Association (SIA) released the following statement in response to the new export controls announced today by the US Commerce Department. SIA represents 99% of the U.S. semiconductor industry by revenue and nearly two-thirds of non-US chip firms.

“We are evaluating the impact of the updated export controls on the US semiconductor industry. We recognize the need to protect national security and believe maintaining a healthy US semiconductor industry is an essential component to achieving that goal.

Overly broad, unilateral controls risk harming the US semiconductor ecosystem without advancing national security as they encourage overseas customers to look elsewhere. Accordingly, we urge the administration to strengthen coordination with allies to ensure a level playing field for all companies.”

Meanwhile, Dutch chipmaker ASML said that given the length and complexity of the regulations, it would need to carefully assess any potential implications. However, as to its business, from the information received, it understood that the new regulations would be applicable to a limited number of fabs in China related to advanced semiconductor manufacturing.

“These export control measures will likely have an impact on the regional split of our systems sales in the medium to long term. However, we do not expect these measures to have a material impact on our financial outlook for 2023 and for our longer-term scenarios for 2025 and 2030, as communicated during our Investor Day in November 2022.

ASML will seek further clarification from the US authorities on the scope of these new regulations. ASML is fully committed to complying with all applicable laws and regulations, including export control legislation in the countries in which we operate,” stated the Dutch company.

Also commenting on the updated restrictions was Arm Holdings Plc boss Rene Haas. In a report by Bloomberg, Haas said the ruling will be difficult to carry out.

“This is a hard problem to solve by just coming up with a list of components that are deemed critical and then applying some kind of guidance against it,” he said Tuesday at the WSJ Tech Live conference in Laguna Beach, California.

What’s going to happen to Nvidia chips?

As the focus on the updated restrictions on China is mostly on the Nvidia H100 chips, it remains to be seen what the company can do. The chip is crucial for the creation of generative AI as we know it.

A spokesperson for the Chinese embassy told Reuters that it “firmly opposes” the new restrictions, adding that “arbitrarily placing curbs or forcibly seeking to decouple to serve (a) political agenda violates the principles of market economy and fair competition (and) undermines the international economic and trading order.”

For China, the new restrictions are yet another blow to its chip supply and plans. However, China may have already foreseen such restrictions. China has already been researching and developing its own chips, despite the lack of equipment.

Recently, Huawei was able to produce a 5G phone, which caused more concerns to the US, especially since the Chinese were not supposed to have access to the materials needed to develop the technology.

The latest update will not affect chips used in consumer goods such as laptops, smartphones and gaming consoles, though some will be subject to export licensing requirements, a statement said.

On a bridge-building visit to China in August, Raimondo said the US was seeking a more normalized relationship with the world’s second-biggest economy, but the new curbs will likely draw an angry reaction from Beijing.

The United States dominates the global chip industry, with Nvidia as the world’s leader in AI chips, Qualcomm as the top vendor of smartphone processors, and Intel as the strongest developer of PC chips. China is investing heavily in an effort to narrow the gap.

In a report by The Washington Post, analysts say Huawei makes the best Chinese alternative to Nvidia’s AI-training chips, though its production scale has been limited. So far.

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