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US Saves Nvidia While Threatening China's Chipmaking Future

US Saves Nvidia While Threatening China's Chipmaking Future
While denying China access to vital U.S. artificial intelligence processors, the Biden administration's sweeping new policies also secretly tossed Nvidia, Intel, and Advanced Micro Devices (AMD) a potential lifeline in one of the world's largest chip markets.
Officials at the United States Bureau of Industry and Security (BIS) indicated Tuesday that they are receptive to the semiconductor industry's feedback in order to continue delivering AI chips to China for small and medium-sized systems.
Officials said the limits were designed to limit China's ability to use American chips to build enormous supercomputers that could be used to produce technologies similar to OpenAI's ChatGPT and could potentially be used for military purposes.
Former US National Security Council export control official Thomas Krueger stated that "the organising principle for all of these rules is to keep them focused on those capabilities that can enable Chinese military systems." They are not interested in wide consumer applications. They're doing everything they can to thread that needle."
US officials requested advice on developing a "tamperproof" method to prevent systems containing up to 256 AI chips from being connected 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 all refused to comment. Following the announcement of the new guidelines, Nvidia shares fell 4.67% on Tuesday.
The other major present that US officials offered Nvidia, Intel, and AMD was to cripple their most proficient Chinese rivals.
Moore Threads and Biren, two well-funded Chinese businesses founded by Nvidia veterans, will find it practically hard to have their designs fabricated using cutting-edge chipmaking equipment under the new constraints.
That means that whatever Nvidia is able to offer to China will most likely be the best legal option for Chinese buyers.
"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.
The new laws, which go into effect in 30 days, target China's semiconductor manufacturers by limiting the export of advanced chipmaking equipment known as immersion deep ultraviolet (DUV) lithography machines that 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 manufactured by Nikon in Japan and ASML in the Netherlands, not by any American toolmakers.
According to Clete Willems, an Akin Gump trade and policy attorney, the DUV guidelines published on Tuesday codified diplomatic work by the United States, Japan, and the Netherlands to implement comparable limitations on selling the equipment to China.
While immersion DUV machines cannot produce cutting-edge semiconductors, they can get close and are likely what Huawei's chip manufacturing partners employed lately to manufacture a new smartphone chip for the 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."
According to David Kanter, President of Real World Insights, instead of the broad swathes of equipment barred by last year's export restrictions, officials tailored them on Tuesday to target specific technologies and processes found in the sophisticated machines required to manufacture improved transistor designs.
By restricting the equipment that is prohibited, the guidelines allow toolmakers to sell equipment designed to create even older chips without risk of violating government regulations.

Christopher J. Mitchell

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