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  • Nvidia says US curbs on AI chip sales to China would cause ‘permanent loss of opportunities’ | CNN Business

    Nvidia says US curbs on AI chip sales to China would cause ‘permanent loss of opportunities’ | CNN Business

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    Hong Kong
    CNN
     — 

    Nvidia warned Wednesday that if the United States imposes new restrictions on the export of AI chips to China, it would result in a “permanent loss of opportunities” for US industry.

    The company’s chief financial officer, Colette Kress, said she didn’t anticipate any “immediate material impact” but tighter curbs would impact earnings in the future.

    US officials plan to tighten export curbs announced in October to restrict the sale of some artificial-intelligence chips to China, according to multiple media reports, including the Wall Street Journal and Financial Times. Washington has ramped up efforts to cut China off from key technologies that can support its military.

    The US Department of Commerce has not replied to a CNN request for comment.

    The rules, as reported, could make it harder for companies like Nvidia

    (NVDA)     to sell advanced chips to China. Fueled by a boom in demand for its AI chips, the company briefly hit a market capitalization of $1 trillion in late May.

    “We are aware of reports that the US Department of Commerce is considering further controls that may restrict exports of our A800 and H800 products to China,” Kress told an investment conference.

    “Over the long-term, restrictions prohibiting the sale of our datacenter GPUs to China, if implemented, would result in a permanent loss of opportunities for US industry to compete and lead in one of the world’s largest markets and impact on our future business and financial results,” she said.

    GPUs refer to graphics processing units, which are chips or electronic circuits capable of rendering graphics for display on electronic devices.

    “Given the strength of demand for our products worldwide, we do not anticipate that such additional restrictions, if adopted, would have an immediate material impact on our financial results. We do not anticipate any immediate material impact on our financial results,” Kress added.

    Last October, the Biden administration unveiled a sweeping set of export controls that ban Chinese companies from buying advanced chips and chip-making equipment without a license.

    The new move is aimed in part at Nvidia’s A800 chip, which the US-based company created following the introduction of last year’s curbs in order to continue to sell to China, Bloomberg reported.

    China is a key market for Nvidia. Revenues from mainland China and Hong Kong accounted for 22% of the company’s revenue last year, according to its financial statements.

    On Wednesday, shares of Nvidia slumped as much as 3.2%, before recouping some of the losses. It ended down 1.8%. Chinese AI stocks suffered much heavier losses.

    Inspur Electronic Information Industry fell by 10%, the maximum allowed, on Wednesday in Shenzhen. It dropped again by 5.3% on Thursday. Chengdu Information Technology of Chinese Academy of Sciences slid 12% on Wednesday. Baidu

    (BIDU)    , which is developing a rival to ChatGPT, sank 4.4% on Thursday in Hong Kong.

    “The US could ruin China’s AI party,” Jefferies analyst said in a research note. Local chipsets do not have Nvidia’s GPU ecosystem, thus every update may require reworking, resulting in lower efficiency and higher costs.

    The Biden administration’s chip curbs would be “much more effective” in limiting China’s advances in military power driven by AI than rules restricting US investment in China’s tech sector, the analysts added.

    China has strongly criticized US restrictions on tech exports, saying earlier this year that it “firmly opposes” such measures.

    In May, Beijing banned Chinese operators of critical information infrastructure from buying products from Micron Technology

    (MU)    , in apparent retaliation against sanctions imposed by Washington and its allies on the country’s chip sector.

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  • China just played a trump card in the chip war. Are more export curbs coming? | CNN Business

    China just played a trump card in the chip war. Are more export curbs coming? | CNN Business

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    Hong Kong
    CNN
     — 

    A trade war between China and the United States over the future of semiconductors is escalating.

    Beijing hit back Monday by playing a trump card: It imposed export controls on two strategic raw materials, gallium and germanium, that are critical to the global chipmaking industry.

    “We see this as China’s second, and much bigger, counter measure to the tech war, and likely a response to the potential US tightening of [its] AI chip ban,” said Jefferies analysts. Sanctioning one of America’s biggest memory chipmakers, Micron Technology

    (MU)    , in May was the first, they said.

    Here’s what you need to know about gallium and germanium, how they could play into the chip war and whether more countermeasures could be coming.

    Last October, the Biden administration unveiled a set of export controls banning Chinese companies from buying advanced chips and chip-making equipment without a license.

    Chips are vital for everything from smartphones and self-driving cars to advanced computing and weapons manufacturing. US officials have talked about the move as a measure to protect national security interests.

    But it didn’t stop there. For the curbs to be effective, Washington needed other key suppliers, located in the Netherlands and Japan, to join. They did.

    China eventually retaliated. In April, it launched a cybersecurity probe into Micron before banning the company from selling to Chinese companies working on key infrastructure projects. On Monday, Beijing announced the restrictions on gallium and germanium.

    Gallium is a soft, silvery metal and is easy to cut with a knife. It’s commonly used to produce compounds that are key materials in semiconductors and light-emitting diodes.

    Germanium is a hard, grayish-white and brittle metalloid that is used in the production of optical fibers that can transmit light and electronic data.

    The export controls have drawn comparisons with China’s reported attempts in early 2021 to restrict exports of rare earths, a group of 17 elements for which China controls more than half of the global supply.

    Gallium and germanium do not belong to this group of minerals. Like rare earths, they can be expensive to mine or produce.

    This is because they are usually formed as a byproduct of mining more common metals, primarily aluminum, zinc and copper, and processed in countries that produce them.

    China is the world’s leading producer of both gallium and germanium, according to the US Geological Survey. The country accounted for 98% of the global production of gallium, and 68% of the refinery production of germanium.

    “The economies of scale in China’s extensive and increasingly integrated mining and processing operations, along with state subsidies, have allowed it to export processed minerals at a cost that operators elsewhere can’t match, perpetuating the country’s market dominance for many critical commodities,” analysts from Eurasia Group said on Tuesday.

    Shares of Chinese producers of the two raw materials surged by 10% on Tuesday.

    Beyond China, Australian rare earths producers also advanced, as investors expected Beijing might extend export curbs to that group of strategically important minerals. Lynas Rare Earths

    (LYSCF)     rose 1.5%.

    The United States is dependent on China for these the two critical elements. It imported more than 50% of the gallium and germanium it used in 2021 from the country, the US Geological Survey showed.

    Eurasia Group analysts described China’s export controls as a “warning shot.”

    “It is a shot across the bow intended to remind countries including the United States, Japan, and the Netherlands that China has retaliatory options and to thereby deter them from imposing further restrictions on Chinese access to high-end chips and tools,” Eurasia Group said in a research note.

    Chinese authorities may also intend to use its control over these niche metals as a possible bargaining chip in discussions with US Treasury Secretary Janet Yellen, who is scheduled to visit Beijing later this week.

    Jefferies analysts said the timing of the announcement was unlikely to be a casual decision.

    “It gives the US at least two days to digest and come up with a well-considered response,” they said.

    However, the move is not considered “a death blow” to the United States and its allies.

    China may be the industry leader, but there are alternative producers, as well as available substitutes for both minerals, the Eurasia Group analysts pointed out.

    The United States also imports a fifth of its gallium from the United Kingdom and Germany and buys more than 30% of its germanium from Belgium and Germany.

    That’s definitely possible, a former senior Chinese official has warned.

    The curbs announced this week are “just the start,” Wei Jianguo, a former deputy commerce minister, told the official China Daily on Wednesday, adding China has more tools in its arsenal with which to retaliate.

    “If the high-tech restrictions on China become tougher in the future, China’s countermeasures will also escalate,” he was quoted as saying.

    Analysts believe this too. Rare earths, which are not difficult to find but are complicated to process, are also critical in making semiconductors, and could be the next target.

    “If this action doesn’t change the US-China dynamics, more rare earth export controls should be expected,” Jefferies analysts said.

    However, analysts from Eurasia Group warned that restricting exports is a “double-edged sword.”

    Past attempts by China to leverage its dominance in rare earths have reduced availability and raised prices. Higher prices have spurred greater competition by making mining and processing ventures outside of China more cost-competitive, they said.

    China cut its rare earths export quota in 2010 amid tensions with the United States.

    That resulted in greater efforts by companies outside of the country to produce the metals. US data showed that China’s global market share dropped from 97% in 2010 to about 60% in 2019.

    “Imposing export restrictions risks reducing market dominance,” the Eurasia Group analysts said.

    CNN’s Hanna Ziady and Xiaofei Xu contributed to reporting.

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  • Japan joins the US and Europe in chipmaking curbs on China | CNN Business

    Japan joins the US and Europe in chipmaking curbs on China | CNN Business

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    Hong Kong/Tokyo
    CNN
     — 

    Japan will restrict the overseas sale of chip manufacturing equipment, joining the United States and the Netherlands in curbing the export of key technology to China.

    The country announced Friday it would tighten exports of 23 types of advanced semiconductor manufacturing equipment.

    The rules will take effect in July, according to Japan’s minister of economy, trade and industry, Yasutoshi Nishimura.

    The ministry said it would require stricter procedures to export to about 160 destinations such as China, while 42 territories — including the United States, South Korea and Taiwan — are recognized by Japan as having adequate export controls in place.

    All exports to countries not formally recognized will now require approval from the Japanese trade ministry, it added.

    At a press conference, Nishimura said the new measures were aimed at preventing the equipment from being diverted for military use.

    “We will fulfill our responsibilities in the international community as a technology-owning country and contribute to maintaining international peace and security,” he told reporters.

    The restrictions are not aimed at a specific country, the trade ministry told CNN on Friday.

    But they follow a series of curbs enacted in recent months to clamp down on sales of chipmaking equipment to China as part of a coordinated international effort led by Washington.

    In October, the United States banned Chinese companies from buying advanced chips and chipmaking equipment without a license. It also restricted the ability of American citizens to provide support for the development or production of chips at certain facilities in China.

    Earlier this month, the Netherlands also unveiled new restrictions on overseas sales of semiconductor technology, citing the need to protect national security.

    Japan has been involved in three-way discussions with both countries, a source familiar with the talks previously told CNN.

    China has strongly criticized restrictions on tech exports, saying earlier this month that it “firmly opposes” such measures.

    Mao Ning, a Chinese foreign ministry spokesperson, also hit back at the latest move from Japan.

    “Weaponizing economic, trade and technology issues to deliberately destabilize the global industry chain will only harm others and harm oneself,” she said at a Friday news briefing.

    Japan is home to several chipmaking equipment producers, including Nikon

    (NINOY)     and Tokyo Electron. The companies’ shares in Tokyo were little changed on Friday.

    Nikon and Tokyo Electron declined to comment.

    In recent reports to clients, Jefferies analysts had assessed the potential consequences of Japanese export controls to China, noting that Nikon did “not anticipate a major impact.”

    For Tokyo Electron, the tightening is also “unlikely to have much additional impact as long as they do not go further than the US sanctions,” they added.

    — Mengchen Zhang contributed to this report.

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  • Seagate to pay $300 million penalty for shipping Huawei hard drives in violation of US export control laws | CNN Business

    Seagate to pay $300 million penalty for shipping Huawei hard drives in violation of US export control laws | CNN Business

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    Reuters
     — 

    Seagate Technology has agreed to pay a $300 million penalty in a settlement with US authorities for shipping over $1.1 billion worth of hard disk drives to China’s Huawei in violation of US export control laws, the Department of Commerce said on Wednesday.

    Seagate

    (STX)     sold the drives to Huawei between August 2020 and September 2021 despite an August 2020 rule that restricted sales of certain foreign items made with US technology to the company. Huawei was placed on the Entity List, a US trade blacklist, in 2019 to reduce the sale of US goods to the company amid national security and foreign policy concerns.

    The penalty represents the latest in a string of actions by Washington to keep sophisticated technology from China that may support its military, enable human rights abuses or otherwise threaten US security.

    Seagate shipped 7.4 million drives to Huawei for about a year after the 2020 rule took effect and became Huawei’s sole supplier of hard drives, the Commerce Department said.

    The other two primary suppliers of hard drives ceased shipments to Huawei after the new rule took effect in 2020, the department said. Though they were not identified, Western Digital

    (WDC)     and Toshiba

    (TOSBF)     were the other two, the US Senate Commerce Committee said in a 2021 report on Seagate.

    The companies did not respond to requests for comment.

    Even after “its competitors had stopped selling to them … Seagate continued sending hard disk drives to Huawei,” Matthew Axelrod, assistant secretary for export enforcement at the Commerce Department’s Bureau of Industry and Security said in a statement. “Today’s action is the consequence.”

    Axelrod said the administrative penalty was the largest in the history of the agency not tied to a criminal case.

    Seagate’s position was that its foreign-made drives were not subject to US export control regulations, essentially because they were not the direct product of US equipment.

    “While we believed we complied with all relevant export control laws at the time we made the hard disk drive sales at issue, we determined that … settling this matter was the best course of action,” Seagate CEO Dave Mosley said in a statement.

    In an order issued on Wednesday, the government said Seagate wrongly interpreted the foreign product rule to require evaluation of only the last stage of its manufacturing process rather than the entire process.

    Seagate made drives in China, Northern Ireland, Malaysia, Singapore, Thailand and the United States, the order said, and used equipment, including testing equipment, subject to the rule.

    In August, the US Department of Commerce sent the company a “proposed charging letter,” warning the company that it may have violated export control laws. The letter kicked off some eight months of negotiations.

    Seagate’s $300 million penalty is due in installments of $15 million per quarter over five years, with the first payment due in October. It also agreed to three audits of its compliance program, and is subject to a five-year suspended order denying its export privileges.

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  • First on CNN: New bipartisan bill in Senate could address TikTok security concerns without a ban | CNN Business

    First on CNN: New bipartisan bill in Senate could address TikTok security concerns without a ban | CNN Business

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    CNN
     — 

    Five US senators are set to reintroduce legislation Wednesday that would block companies including TikTok from transferring Americans’ personal data to countries such as China, as part of a proposed broadening of US export controls.

    The bipartisan bill led by Oregon Democratic Sen. Ron Wyden and Wyoming Republican Sen. Cynthia Lummis would, for the first time, subject exports of US data to the same type of licensing requirements that govern the sale of military and advanced technologies. It would apply to thousands of companies that rely on routinely transferring data from the United States to other jurisdictions, including data brokers and social media companies.

    The legislation comes amid a flurry of proposals to regulate how TikTok and other companies may handle the sensitive and valuable data of Americans — not just their names, email addresses and phone numbers but also potentially their behavioral data such as location information, search and browsing histories and personal interests.

    “Massive pools of Americans’ sensitive information — everything from where we go, to what we buy and what kind of health care services we receive — are for sale to buyers in China, Russia and nearly anyone with a credit card,” Wyden said in a statement. “Our bipartisan bill would turn off the tap of data to unfriendly nations, stop TikTok from sending Americans’ personal information to China, and allow nations with strong privacy protections to strengthen their relationships.”

    Lawmakers have scrutinized TikTok, in particular, for its ties to China through its parent company, ByteDance. Much of the existing legislation addressing TikTok at the federal and state level has focused on bans of the app. But Wyden’s bill subjecting US data to export licensing could address the issue without wading into the thorny legal issues surrounding a potential ban, an aide said, and simultaneously avoid giving broad new powers to the executive branch.

    Wednesday’s legislation, known as the Protecting Americans’ Data From Foreign Surveillance Act, does not identify TikTok by name. Instead, it directs the Commerce Department to maintain lists of countries that are considered trustworthy and untrustworthy for the purposes of receiving US data.

    There would be no restrictions applied to personal information transferred to trustworthy states, and no restrictions on individual internet users’ own transfers of their personal data, but companies seeking to transfer Americans’ personal information to countries outside of the trustworthy list would be required to apply for a license. Transfers to countries on the untrustworthy list would be automatically prohibited unless companies could prove they have a valid reason for a transfer, according to a copy of the bill text reviewed by CNN.

    Factors the Commerce Department would need to consider when building its lists include whether a country has enough of its own privacy safeguards — reflected in laws, regulations and norms — to prevent sensitive US data from being transferred further to one of the untrustworthy countries. Another factor includes whether a country has engaged in “hostile foreign intelligence operations, including information operations, against the United States,” language that appears to refer to China, Russia and other foreign adversaries.

    The Commerce Department would also be authorized to identify the specific types of information that would be subject to licensing requirements, based on their sensitivity, as well as how much information a company could transfer to a non-approved country before needing a license.

    A previous version of the bill was introduced last summer. The newest version, the Wyden aide said, includes fresh language that targets TikTok indirectly by prohibiting data transfers from one company to a parent company that may receive data requests by a hostile foreign government, when the company holds data on more than one million users.

    TikTok has faced criticism from US officials who say the company’s links to China pose a national security risk. TikTok has said it has never received a request for US user data from the Chinese government and would never comply with such a request.

    TikTok has also said it is working on securing US user data by storing it on servers controlled by Oracle and by establishing special US access protocols to prevent unauthorized use of the information.

    Should TikTok abide by its plan, known as Project Texas, Wednesday’s legislation would not affect the company, according to the Wyden aide, but if TikTok or ByteDance did seek to move US user data to China, then those transfers would potentially be subject to the proposed Commerce Department restrictions.

    Congress has made several attempts in recent months to address data transfers to foreign adversaries. In February, House lawmakers advanced a bill that would all but require the Biden administration to ban TikTok over national security concerns about the app. The next month, Senate lawmakers introduced a bill that would give the Commerce Department wide latitude to assess all foreign-linked technologies and to take virtually any measures, up to and including imposing a nationwide ban, to restrict their domestic use.

    Those bills have provoked a backlash from industry and civil liberties groups, as well as among some fellow lawmakers. Among the concerns are their potential impact on Americans’ First Amendment rights and a potential conflict with laws facilitating the free flow of media to and from foreign rivals. Other concerns include whether the breadth of the legislation could give the US government too much power and whether it could end up harming industries that are not the target of the legislation.

    The new bill includes language requiring more input from privacy, civil rights and civil liberties experts, said Justin Sherman, founder and CEO of the research firm Global Cyber Strategies and a senior fellow at Duke University’s Sanford School of Public Policy who has seen the bill.

    “You don’t load up Excel sheets in a shipping crate and send them to a foreign port,” Sherman said, but data transfers are a “hugely and often ignored problem in national security.”

    “We need to get beyond just looking at a couple mobile apps and platforms, and start looking at all parts of this ecosystem, including how data gets sold and transferred,” Sherman added, “and this bill takes an important look at that issue.”

    Other senators co-sponsoring Wednesday’s legislation include Rhode Island Democratic Sen. Sheldon Whitehouse, Tennessee Republican Sen. Bill Hagerty, New Mexico Democratic Sen. Martin Heinrich and Florida Republican Sen. Marco Rubio. A companion bill in the House will also be unveiled Wednesday, sponsored by Ohio Republican Rep. Warren Davidson and California Democratic Rep. Anna Eshoo.

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