US orders tech firm to halt sales of artificial intelligence chips to China

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Us Orders Tech Firm To Halt Sales Of Artificial Intelligence Chips To China Us Orders Tech Firm To Halt Sales Of Artificial Intelligence Chips To China
The ban on Nvidia exporting certain chips to China could cripple Chinese firms' ability to carry out advanced work like image recognition. Photo: Justin Sullivan/Getty
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By Stephen Nellis and Jane Lanhee Lee, Reuters

Chip designer Nvidia said on Wednesday that US officials told it to stop exporting two top computing chips for artificial intelligence work to China, a move that could cripple Chinese firms' ability to carry out advanced work like image recognition and hamper Nvidia's business in the country.

The announcement signals a major escalation of the US crackdown on China's technological capabilities as tensions bubble over the fate of Taiwan, where chips for Nvidia and almost every other major chip firm are manufactured.

Nvidia shares fell 6.6 per cent after hours. The company said the ban, which affects its A100 and H100 chips designed to speed up machine learning tasks, could interfere with completion of developing the H100, the flagship chip it announced this year.

Shares of rival Advanced Micro Devices fell 3.7 per cent after hours. An AMD spokesman told Reuters it had received new license requirements that will stop its MI250 artificial intelligence chips from being exported to China but it believes its MI100 chips will not be affected. AMD said it does not believe the new rules will have a material impact on its business.

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Nvidia said US officials told it the new rule "will address the risk that products may be used in, or diverted to, a 'military end use' or 'military end user' in China."

The US Department of Commerce would not say what new criteria it has laid out for AI chips that can no longer be shipped to China but said it is reviewing its China-related policies and practices to "keep advanced technologies out of the wrong hands.

"While we are not in a position to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions necessary related to technologies, end-uses, and end-users to protect U.S. national security and foreign policy interests," a spokesperson told Reuters.

The Chinese foreign ministry responded on Thursday by accusing the United States of attempting to impose a "tech blockade" on China, while its commerce ministry said such actions would undermine the stability of global supply chains.

"The US continues to abuse export control measures to restrict exports of semiconductor-related items to China, which China firmly opposes," commerce ministry spokesperson Shu Jieting said at a news conference.

This is not the first time the US has moved to choke off Chinese firms' supply of chips. In 2020, former president Donald Trump's administration banned suppliers from selling chips made using US technology to tech giant Huawei without a special licence.

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Without American chips from companies like Nvidia and AMD, Chinese organizations will be unable to cost-effectively carry out the kind of advanced computing used for image and speech recognition, among many other tasks.

Image recognition and natural language processing are common in consumer applications like smartphones that can answer queries and tag photos. They also have military uses such as scouring satellite imagery for weapons or bases and filtering digital communications for intelligence-gathering purposes.

Nvidia said it had booked $400 million in sales of the affected chips this quarter to China that could be lost if firms decide not to buy alternative Nvidia products. It said it plans to apply for exemptions to the rule.

Stacy Rasgon, a financial analyst with Bernstein, said the disclosure signalled that about 10 per cent of Nvidia's data centre sales were coming from China and that the hit to sales was likely "manageable" for Nvidia.

“It’s not [investment] thesis changing, but it’s not a good look,” Rasgon said. “What happens on both sides now is the question.”

Nvidia last week forecast a sharp drop in revenue for the current quarter on the back of a weaker gaming industry. It said it expected third-quarter sales to fall 17 per cent from the same period last year.

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