American Chipmaker Forced to Stop Sales to China and Russia

Nvidia can no longer sell semiconductor chips to the countries.

QUICK FACTS:
  • The U.S. government informed American chipmaker Nvidia of a new license requirement that would forbid the sale of two cutting-edge chips to China and Russia.
  • The company said in a quarterly report released on Wednesday saying that the government has concerns the chips might have intelligence applications.
  • The company said that they were told they would need to have a new license to sell their advanced chips, which were expected to generate $400 million in quarterly sales.
  • The revenue is now uncertain due to the new restriction put in place, amid fears that the Chinese or Russian miliaries might use the chips for warfare.
  • Nvidia has insisted that they do not sell their products to Russia, but they are still required to halt the sale in order to secure the new license.
  • Their report indicates that the company does have business dealings with China, however, where the chips are reportedly used to accelerate machine learning.
THE REPORT’S STATEMENTS ON CHINA AND RUSSIA:
  • “The [United States government] indicated that the new license requirement will address the risk that the covered products may be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China and Russia,” Nvidia’s report stated. “We do not sell products to customers in Russia.”
  • The report went on to outline their dealings with China, saying the “new license requirement may impact our ability to complete our development of H100 in a timely manner or support existing customers of A100 and may require us to transition certain operations out of China, which could be costly and time consuming, and adversely affect our research and development and supply and distribution operations, as well as our revenue, during any such transition period. We are engaged with the USG and are seeking exemptions for our internal development and support activities.”
  • As to their business with Russia, the company’s report stated, “During the first quarter of fiscal year 2023, we paused direct sales to Russia. Direct sales to Russia in fiscal year 2022 were immaterial. Our revenue to partners that sell into Russia may be negatively impacted due to the war in Ukraine and we estimate that in fiscal year 2022, Russia accounted for approximately 2% of total end customer sales and 4% of Gaming end customer sales. Long lived assets in Russia are immaterial.”
BACKGROUND:
  • Fears of cooperation in military operations between Russia and China have grown following the start of the conflict between Ukraine and Russia.
  • On Thursday, international media reported that the two nations launched “large-scale military drills amid tensions with [the] US.”
  • United States media reported Thursday that the military exercises to strengthen ties between the nations have begun in both Moscow and Beijing and are expected to last through Sept. 7.