Nvidia's High-End Chips Ended Up In Chinese Hands Despite US Ban: Here's How Beijing Scored Them

Chinese entities have managed to acquire high-end NVIDIA Corp NVDA chips, despite the U.S. imposing a ban on such technology. The chips were obtained through third-party vendors and were embedded in servers made by Super Micro Computer Inc. SMCI, Dell Technologies Inc. DELL, and Gigabyte Technology Co Ltd.

What Happened: Despite the U.S. expanding its ban on the sale of such technology to China in November, ten Chinese entities successfully acquired advanced Nvidia chips. These chips were integrated into servers manufactured by Super Micro, Dell, and Gigabyte Technology, Reuters reported reviewing hundreds of tender documents.

The servers contained some of Nvidia’s most advanced chips, as per the tenders fulfilled between Nov. 20 and Feb. 28. The U.S. embargo, which was expanded on Nov. 17, subjected more chips and countries to licensing rules.

The reviewed tender documents showed that the Chinese entities obtained the chips through little-known Chinese retailers. It was unclear whether these retailers used stockpiles acquired before the U.S. tightened chip-export restrictions in November.

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Nvidia stated that 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 also claimed they complied with applicable laws or would investigate further.

Daniel Gerkin, a partner at law firm Kirkland & Ellis based in Washington, suggested that Nvidia chips might have been redirected to China without the manufacturer’s awareness, due to a lack of transparency in downstream supply chains.

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.

Why It Matters: The U.S. has been taking several measures to restrict China’s access to advanced chip technology. In March, the U.S. announced a list of Chinese chipmaking facilities that would be prohibited from receiving crucial tools. This move was expected to significantly impact the global semiconductor industry.

Despite these restrictions, China has continued to criticize the U.S.’s semiconductor export regulations. The country remains a crucial market for U.S. semiconductor firms, with companies like Intel INTC, Broadcom AVGO, and Qualcomm QCOM reporting greater revenues from China than from the U.S.

Despite the ban, Chinese entities, including the military and government sectors, have managed to procure Nvidia chips through various means, highlighting the challenges faced by the U.S. in completely cutting off China’s access to advanced U.S. chips.

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