US officials order Nvidia to stop selling top AI chips to China

Technology company Nvidia’s logo 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 US officials had told it to halt exports to China of two top computer chips designed to work with artificial intelligence, a move that could hamper Chinese companies’ ability to do advanced work like image recognition and hamper a business Nvidia expects to make $400 million in revenue this quarter.

Nvidia shares fell 4% after the close. The company said the ban, which affects its A100 and H100 chips designed to speed up machine learning tasks, could hamper the completion of development of the H100, the flagship chip Nvidia announced earlier this year.

Shares in Nvidia competitor Advanced Micro Devices (AMD.O) are down 2% after hours. An AMD spokesman told Reuters that it has received new licensing requirements that prevent its MI250 artificial intelligence chips from being exported to China, but he believes its MI100 chips will not be affected. AMD said it doesn’t think the new rules will have a material impact on its business.

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Nvidia said U.S. officials said the new rule 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.”

The announcement signals a major escalation in the US crackdown on China’s technological prowess as tensions simmer over the fate of Taiwan, which makes chips for Nvidia and almost every other major chip company.

Without American chips from companies like Nvidia and its competitor Advanced Micro Devices (AMD.O), Chinese companies won’t 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 queries and tag photos. They also have military uses such as scanning satellite imagery for weapons or bases and filtering digital communications to gather intelligence.

AMD did not immediately respond to requests for comment.

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

Stacy Rasgon, a financial analyst at Bernstein, said the disclosure signals that about 10% of Nvidia’s data center sales, which investors have been watching closely for the past several years, come from China and that the sales decline is likely “manageable” for Nvidia.

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

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reporting by Eva Mathews in Bengaluru; Edited by Devika Syamnath and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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