Commerce secretary to crack down on Nvidia AI chips redesigned to get around trade curbs

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Secretary of Commerce Gina Raimondo put companies like Nvidia that manufacture artificial intelligence (AI) chips on notice that the agency will move to quickly crack down on redesigned chips intended to get around export controls that apply to adversarial countries like China.

The Commerce Department has put in place export controls designed to restrict the most advanced AI chips from being sold to countries like China where they could serve a dual-use purpose, aiding the country’s military modernization while also boosting its economic and technological competitiveness. Export controls require companies to obtain a license from federal agencies to sell covered products overseas, effectively giving the government a veto over the transaction.

To retain access to lucrative overseas markets affected by the export controls, chipmakers have redesigned modified versions of those chips to make them compliant with the regulations — which has prompted a game of cat-and-mouse as the agency imposes new curbs in response to the reworked chips.

“We cannot let China get these chips. Period. We’re going to deny them our most cutting-edge technology,” Raimondo said Saturday at the Reagan National Defense Forum in California.

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“I know there are CEOs of chip companies in this audience who were a little cranky with me when I did that because you’re losing revenue,” Raimondo explained. “Such is life. Protecting our national security matters more than short-term revenue.”

“If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day,” she added.

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A spokesperson for Nvidia told FOX Business, “We are engaged with the U.S. government and, following the government’s clear guidelines, are working to offer compliant data center solutions to customers worldwide.”

The Commerce Department did not immediately respond to a request for comment.

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The Biden administration issued a broad set of export controls broadly aimed at restricting China’s access to the most advanced AI chips that can serve dual-use purposes in October 2022. The administration expanded on those restrictions this fall with another round of export controls.

Nvidia has sold its A800 and H800 AI chips in the Chinese market as recently as this summer, which are modified versions of more powerful products like the A100 and H100 in its portfolio that have been subject to export controls. The A800 and H800 chips, as well as Nvidia’s L40S chips, were added to the export control list in mid-October 2023, which Nvidia said came about when the Commerce Dept. sped up the restrictions’ implementation.

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China isn’t the only country the U.S. has imposed export controls on that cover AI chips. The Biden administration has also extended those restrictions to Vietnam and several countries in the Middle East, which Nvidia noted includes but isn’t limited to Saudi Arabia and the United Arab Emirates, while Israel is excluded from the export controls.

During an earnings call last month, Nvidia chief financial officer Colette Kress indicated the company plans to produce products that comply with export controls in the months ahead.

She noted that about one-fourth of the company’s sales in its data center segment, which generated $14.5 billion in revenue in Q3 of its fiscal year 2024, come from countries covered by the export controls.

“We expect that our sales to these destinations will decline significantly in the fourth quarter of fiscal 2024, though we believe the decline will be more than offset by strong growth in other regions,” she added.

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