Analysis: US throws Nvidia a lifeline while choking off China's chipmaking future
18/10/2023 08:00
By Stephen Nellis and Max A. Cherney
SAN FRANCISCO, Oct 18 (Reuters) - While stripping
China's access to key U.S. artificial intelligence chips, the
Biden administration's sweeping new rules also quietly threw
Nvidia NVDA.O , Intel INTC.O and Advanced Micro Devices (AMD)
AMD.O a potential lifeline to preserve lucrative business in
one of the world's biggest chip markets.
Buried deep in more than 400 pages of rules issued on
Tuesday, officials at the U.S. Bureau of Industry and Security
(BIS) said they are open to the semiconductor industry's input
for finding ways to keep sending AI chips to China for small and
medium-sized systems.
The rules were designed to curtail China's ability to
exploit American chips to build massive supercomputers that can
be used to create technologies similar to OpenAI's ChatGPT and
could also be used for military purposes, officials said.
Thomas Krueger, a former U.S. National Security Council
export control official, said "the organizing principle for all
these rules is to keep them focused on those capabilities that
can enable Chinese military systems. They're not interested in
going after broad consumer applications. They're really trying
to thread that needle."
U.S. officials asked for input in devising a "tamperproof"
way to keep systems that might contain up to 256 AI chips from
being strung together into a supercomputer.
"This approach could constrain (controlled AI chips) from
being used to train large dual-use AI foundation models with
capabilities of concern, while allowing AI training capabilities
at a small or medium scale," the BIS wrote.
Nvidia, Intel and AMD declined to comment. Nvidia shares
closed down 4.67% on Tuesday after the new rules were announced.
The other primary gift that U.S. officials gave Nvidia,
Intel and AMD was hobbling their most capable Chinese
competitors.
New rules will make it nearly impossible for Moore Threads
and Biren, two well-funded Chinese startups founded by Nvidia
veterans, to have their designs manufactured using cutting-edge
chipmaking technology.
That means whatever Nvidia is able to sell to China will
likely be Chinese buyers' best legal option.
"Our assumption is that (Nvidia) will quickly redesign a
chip to meet new standards with relatively immaterial
disruptions to the current business outlook," analysts at
investment bank Piper Sandler wrote in a note to clients.
TOOL RULES TIGHTENED
As part of the new rules published on Tuesday that take
effect in 30 days, U.S. officials targeted China's chip
manufacturers by restricting the export of advanced chipmaking
equipment known as immersion deep ultraviolet (DUV) lithography
machines if they contain any American parts.
"What they're really doing is closing all the doors,"
TechInsights analyst Dan Hutcheson said, adding the new rules
close off a substantial amount of potential future developments.
"They're basically trying to future-proof the document."
The DUV machines are not produced by any American
toolmakers, but are made by Japan's Nikon 7731.T and the
Netherlands' ASML ASML.AS .
The DUV rules announced on Tuesday codified diplomatic
work between the U.S., Japan and the Netherlands to institute
similar controls on sending the machines to China, said Clete
Willems, a trade and policy attorney with Akin Gump.
While immersion DUV machines cannot product cutting-edge
chips, they can come close and are likely what was recently used
by Huawei's chip manufacturing partners to create a new
smartphone chip for its Mate 60 Pro, according to analysts.
"This control alone will constrain China’s ability to expand
advanced node semiconductor manufacturing for many years," said
Gregory Allen, a director at the Center for Strategic and
International Studies.
"If spare parts and components for the equipment can be
effectively controlled, the new regulations may degrade the
advanced node manufacturing facilities that China currently has
in operation."
Instead of the broad swaths of tools blocked by last year's
export restrictions, officials on Tuesday narrowed them to
target specific technologies and techniques found in the complex
machines needed to build advanced transistor designs, according
to David Kanter, President of Real World Insights.
By narrowing the equipment that is blocked, the rules allow
the toolmakers to sell equipment that is made to build much
older chips without fear of running afoul of the government
restrictions.
(Reporting by Stephen Nellis and Max A. Cherney in San
Francisco; Editing by Kenneth Li and Jamie Freed)
((mailto:Stephen.Nellis@thomsonreuters.com;))