China acquired recently banned Nvidia chips in Super Micro, Dell servers, tenders show

Gigabyte Technology

23/04/2024 04:31

By Eduardo Baptista, Fanny Potkin, Max A. Cherney
       BEIJING/SINGAPORE, April 23 (Reuters) - Chinese
universities and research institutes recently obtained high-end
Nvidia  NVDA.O  artificial intelligence chips through resellers,
despite the U.S. widening a ban last year on the sale of such
technology to China.
A Reuters review of hundreds of tender documents shows 10
Chinese entities acquired advanced Nvidia chips embedded in
server products made by Super Micro Computer Inc.  SMCI.O , Dell
Technologies Inc.  DELL.N  and Taiwan's Gigabyte Technology Co
Ltd  2376.TW  after the U.S. on Nov. 17 expanded the embargo to
subject more chips and countries to licensing rules. 
    Specifically, the servers contained some of Nvidia's most
advanced chips, according to the previously unreported tenders
fulfilled between Nov. 20 and Feb. 28. While the U.S. bars
Nvidia and its partners from selling advanced chips to China,
including via third parties, the sale and purchase of the chips
are not illegal in China.
    The 11 sellers of the chips were little-known Chinese
retailers. Reuters could not determine whether, in fulfilling
the orders, they used stockpiles acquired before the U.S.
tightened chip-export restrictions in November.
    Contacted by Reuters, Nvidia said the tenders specify
products that were exported and widely available before the
restrictions. "They do not indicate that any of our partners
violated the export control rules and are a negligible fraction
of the products sold worldwide," a spokesperson said.    
    The server makers said they complied with applicable laws or
would investigate further.
    Among the buyers were the Chinese Academy of Sciences, the
Shandong Artificial Intelligence Institute, Hubei Earthquake
Administration, the Shandong and Southwest universities, a tech
investment firm owned by the Heilongjiang provincial government,
a state-run aviation research centre, and a space science
centre.
    None of the Chinese buyers and retail sellers responded to
questions from Reuters about the matter.
    Daniel Gerkin, a Washington-based partner at law firm
Kirkland & Ellis, said Nvidia chips could have been diverted to
China without a manufacturer's knowledge, given a lack of
visibility into downstream supply chains.
    If the manufacturer had performed sufficient due diligence,
"it presumably would be challenging for the U.S. government to
pursue an enforcement action", he said.
    The U.S. Commerce Department told Reuters it could not
comment on any potential ongoing investigations, but said its
Bureau of Industry and Security monitored diversions of
restricted chips, conducted end-use checks and examined
potential breaches.
    Officials would investigate credible allegations of
violations, including through the use of shell companies, a
spokesperson said. 
    Nvidia said systems built with its graphic processing units
(GPUs) - chips that break computer tasks into smaller pieces and
process them together - and resold by third parties must comply
with U.S. restrictions.
    "If we determine that any product was subsequently resold in
violation of U.S. export control rules, we'll work with our
customers to take appropriate action," the spokesperson said.
    Super Micro said it complied with U.S. requirements on the
sale and export of GPU systems to regions and parties that
require licenses.
    "If we become aware that a third party has exported or
reexported without the required licenses, we investigate the
matter and take appropriate action," it said.
    In a letter to Reuters on behalf of Super Micro, U.S. law
firm Clare Locke said its client "goes above and beyond what
U.S. export restrictions require" by proactively taking steps to
ensure its customers do not violate the curbs.
    In relation to the tenders that identified its products,
Super Micro said they represent "older generation or general
purpose servers not capable of the largest scale AI operations
that were available in China prior to the export control
regulations". The awarded suppliers "are not known Supermicro
customers", the company said.
    A Dell spokesperson said the company "found no evidence of
shipping products configured with the restricted chips you
listed to the entities you named", but that it would continue to
investigate.
    "Our distributors and resellers are required to comply with
all applicable global regulations and export controls. If we
become aware of a distributor or reseller that is not complying
with these obligations, we take appropriate actions, including
termination of our relationship," the spokesperson said.
    Gigabyte said in an email that it complied with Taiwanese
laws and international regulations. It did not respond to
subsequent questions about tenders that identified its products
as a source of banned Nvidia chips. Taiwan's economy ministry
said it expected Taiwanese companies to respect U.S. export
controls.
     
    RESEARCH BENEFITS
    The transactions were disclosed in a dozen of the tenders,
which Reuters found on public databases that cover only a
fraction of purchases by China's state entities. But the small
snapshot shows China still has access to advanced chips that
U.S. officials say could support AI for military applications,
such as the modernisation of China's defence forces or for
developing weapons like hypersonic missiles.
    Each of the purchases were limited to several servers and
several dozen banned chips. Still, they could be useful for
training models and conducting advanced research, according to
seven analysts and industry executives.
    The tenders - valued at between 71,500 yuan and 1.86 million
yuan, or about $10,000 and $259,000 - did not specify the
intended uses.
    Under Chinese law, procuring agencies representing state or
state-affiliated buyers must check that a supplier can fulfil
the tender before it is announced as the winner and a contract
is signed.
    Reuters only analysed tenders whose winners had been
announced.
    Companies and people accused of violating U.S. export
controls can face civil or criminal penalties in the U.S.,
including fines of hundreds of thousands of dollars and up to 20
years in prison for individuals.
Reuters last year reported that an underground trade in Nvidia
chips had emerged in China, as evident at Shenzhen's Huaqiangbei
electronics market in June, before the U.S. widened its curbs.
On a return visit in December, the vendors who had spoken to
Reuters months earlier had gone, and other sellers said they did
not know why they left.
    Reuters couldn't establish why the vendors were no longer at
the market.    
     
    ($1 = 7.1932 Chinese yuan renminbi)

(Cherney reported from San Francisco. Additional reporting by
Beijing newsroom, David Kirton in Shenzhen, Josh Ye in Hong
Kong, Stephen Nellis in San Francisco, Alexandra Alper and Karen
Freifeld in Washington and Ben Blanchard in Taipei; Editing by
Brenda Goh and David Crawshaw)
((mailto:brenda.goh@thomsonreuters.com; +86 (0) 21 2083 0088;
Reuters Messaging:
rm://brenda.goh.thomsonreuters.com@reuters.net/))