Reuters-Biden to cut China off from more Nvidia chips expand curbs to dozens of countries

The Biden administration said on Tuesday it plans to halt shipments to China of more advanced artificial intelligence chips designed by Nvidia and others, part of a suite of measures aimed at stopping Beijing getting cutting-edge U.S. technologies to strengthen its military.

The rules restrict a broader swathe of advanced chips and chipmaking tools to a greater number of countries including Iran and Russia, and blacklist Chinese chip designers Moore Threads and Biren.

The new measures aim to hamper China's military development by closing loopholes in regulations released last October and will probably be updated "at least annually," Commerce Department Secretary Gina Raimondo told reporters late on Monday.

The goal is to limit China's access to "advanced semiconductors that could fuel breakthroughs in artificial intelligence and sophisticated computers that are critical to (Chinese) military applications," she said, stressing the administration was not seeking to hurt Beijing economically.

The United States and China are locked in a years-long technology war, but the sweeping curbs unveiled last year further escalated tensions between the superpowers.

In a statement following publication of the rules, top AI chip designer Nvidia (NVDA.O) said it complies with regulations and does not expect "a near-term meaningful impact" to its financial results.

The company has made chips such as the A800 and H800 that walked right up the line of the previous rules to continue selling to China, and AMD (AMD.O), also impacted by the rules, has said it plans a similar strategy.

Nvidia's shares fell 6%, while shares in AMD and another rival AI chipmaker, Intel (INTC.O), slid 3.4% and 3.8% respectively.

Nvidia's business has soared since the imposition of last year's rules because its China-only chips are still better than alternatives. The Silicon Valley firm is currently selling almost every chip it can procure as worldwide demand outstrips supply, but would be hurt in the long term as Chinese chip firms seek to fill any voids left by U.S. companies.

Nvidia's A800 and H800 chips will be hit by the new regulations, due to a change in chip parameters aimed at capturing a greater number of chips.

The rules will exempt most consumer chips used in laptops, smartphones and gaming, though some will be subject to licensing and notification requirements by U.S. officials.

"The fact is, China, even after the update of this rule, will import hundreds of billions of dollars of semiconductors from the United States," Raimondo said, emphasizing that the goal of the measures was not to hammer U.S. companies.

The previous rules imposed a two-pronged test that measured both a chip’s computing performance and its ability to communicate with other chips, an important measure in AI supercomputers where thousands of chips are strung together to chew through huge amounts of data.

Nvidia and Intel created special chips for the Chinese market that retained the powerful computing capabilities but limited communications speeds to stay inside the previous rules.

The new rules impose limits on how much computing power a chip packs into a certain size, a measure designed to prevent workarounds using new "chiplet" technology that China has said will be central to its semiconductor industry's future.

Biren and Moore Threads, whose U.S. suppliers will now face a tough licensing requirement before shipping products to them, are both Chinese startups founded by former Nvidia employees and aim to compete with the U.S. AI chip giant.

Biren said it firmly opposes its blacklisting and will appeal to the U.S. government to reexamine the decision. Moore Threads said it strongly disagrees with its addition to the trade blacklist.

The new measures also expand licensing requirements for exports of advanced chips to more than 40 additional countries that present risks of diversion to China and are subject to U.S. arms embargoes.

That measure appears to build on a letter received by Nvidia in August that it described as restricting shipments of its A100 and H100 chips beyond China to other regions including some countries in the Middle East.

Confirming a Reuters report, chips will be barred from being sent to units of firms located anywhere in the world if their parent companies are headquartered in China, Macau and other arms embargoed countries. The move is part of a bid to keep the chips from being illegally smuggled into China or remotely accessed by Chinese parent companies.

The Biden administration also hit 21 countries outside China with a licensing requirement for chipmaking tools.

It also added to the list of equipment restricted from going to that country to include some deep ultraviolet (DUV) lithography systems, going beyond recent Dutch regulations to keep the Netherlands' ASML from sending older DUV models and spare parts to some advanced Chinese chip factories, confirming another Reuters report.

DUV is less advanced chipmaking equipment than state-of-the art extreme ultraviolet equipment (EUV), which has already been withheld from China, but can make chips nearly as advanced at greater cost.

ASML said in a statement the new measures would likely have an impact on "the regional split of our system sales" over the medium to longterm, but that the company did not expect to see a "material impact" on its financial outlook for 2023 or the longer term.

Shares of rival U.S. equipment makers Lam Research, Applied Materials and KLA dropped 3%, 2% and 3% respectively. Those companies, as well as the Chinese Embassy in Washington, did not immediately respond to requests for comment.

U.S. officials said Chinese counterparts were warned the rules were coming by Raimondo, National Security Advisor Jake Sullivan, and Treasury Secretary Janet Yellen, confirming a Reuters report.

The Semiconductor Industry Association said in a statement it was "evaluating the impact" of the new rules and urged the administration to work with allies. "Overly broad, unilateral controls risk harming the U.S. semiconductor ecosystem without advancing national security," the group said.