US officials order Nvidia to stop sales of top AI chips to China

The logo of technology company Nvidia is seen at its headquarters in Santa Clara, California February 11, 2015. REUTERS/Robert Galbraith

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Aug 31 (Reuters) – Chip designer Nvidia Corp ( NVDA.O ) said on Wednesday that U.S. officials told it to stop exporting two top computer chips for artificial intelligence work to China, a move that could cripple Chinese firms’ ability to perform advanced functions such as image recognition and hinder Nvidia’s operations in China.

Nvidia shares fell 6.6% after hours. The company said the ban, which affects the A100 and H100 chips designed to speed up machine learning tasks, could disrupt the completion of development of the H100, the flagship chip Nvidia announced this year.

Shares of Nvidia rival Advanced Micro Devices Inc ( AMD.O ) fell 3.7% after hours. An AMD spokesman told Reuters the company had received new licensing requirements that will stop its MI250 artificial intelligence chips from being exported to China, but it believes its MI100 chips will not be affected. AMD said it does not believe the new rules will have a material impact on its business.

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Nvidia said US officials said the new rule “will address the risk that the covered products could be used in, or diverted to, a ‘military end use’ or ‘military end user’ in China.”

Asked for comment, the U.S. Commerce Department would not say what new criteria it has set for AI chips that can no longer be shipped to China, but said it is reviewing its China-related policies and practices to “keep advanced technologies out of the wrong hands.”

“While we are unable to outline specific policy changes at this time, we are taking a comprehensive approach to implement additional actions necessary related to technologies, end uses, and end users to protect U.S. national security and foreign policy interests,” said a spokesperson for Reuters.

The announcement signals a sharp escalation in the U.S. crackdown on China’s technology capabilities as tensions bubble over the fate of Taiwan, where chips for Nvidia and nearly all other major chip companies are made.

Without American chips from companies like Nvidia and AMD, Chinese organizations will not be able to cost-effectively perform the kind of advanced computing used for image and speech recognition, among many other tasks.

Image recognition and natural language processing are common in consumer applications such as smartphones that can answer questions and tag images. They also have military uses such as scouring satellite imagery for weapons or bases and filtering digital communications for intelligence gathering purposes.

Nvidia said it had booked $400 million in sales of the affected chips this quarter to China that could be lost if Chinese firms decide not to buy alternative Nvidia products. It said it plans to apply for exemptions to the rule, but has “no assurances” that US officials will grant them.

Stacy Rasgon, a financial analyst at Bernstein, said the disclosure signaled that about 10% of Nvidia’s data center sales, which investors have closely watched in recent years, came from China and that sales were likely “manageable” for Nvidia.

“It’s not the (investment) thesis that’s changing, but it’s not a good look,” Rasgon said. “What happens on both sides now is the question,” he said of possible escalations going forward.

The chip ban comes as Nvidia last week already predicted a sharp drop in revenue for the current quarter on the back of a weaker gaming industry. Nvidia said it expected third-quarter sales of $5.90 billion, down 17% from the same period last year.

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Reporting by Eva Mathews and Nivedita Balu in Bengaluru, Stephen Nellis and Jane Lee in San Francisco, Karen Freifeld in New York and Alexandra Alper in Washington; Editing by David Gregorio and Matthew Lewis

Our standards: Thomson Reuters Trust Principles.

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