US blacklists 319 Chinese firms in semiconductor dispute, China retaliates

The US Department of Commerce’s Bureau of Industry and Security (BIS) escalated tensions in February by adding an additional six Chinese companies to its blacklist, following the earlier inclusion of eight companies. With these new additions, the Biden administration has now blacklisted a total of 319 Chinese firms, surpassing the Trump administration’s record of 306. In response, China has promptly retaliated.

The semiconductor industry buzzed with news on April 11 (local time) that among the newly blacklisted firms was Sitonholy, a Chinese partner of Nvidia. Industry insiders view this move as the US commencing a comprehensive blockade against China, dubbed the “Semiconductor Wall of Tears.” Kevin Kurland, the deputy assistant secretary for industry and security at the Commerce Department, stated, “These companies have been involved in supplying AI semiconductors for China’s military modernization programs and its intelligence services.”

Sitonholy, leveraging Nvidia and Intel chips, provides cloud services within China and has supplied high-performance servers equipped with Nvidia GPUs to various Chinese companies and institutions. These firms have built advanced AI infrastructure by adopting Sitonholy’s servers instead of purchasing Nvidia chips directly. However, with the new sanctions, Nvidia and Intel will now need to secure export licenses from the BIS to continue their dealings with Sitonholy.

Despite imposing sanctions, the US has previously turned a blind eye to indirect sales of its advanced chips to China via partners like Sitonholy, largely because a significant portion of major American companies’ revenues depend on the Chinese market. As of the third quarter last year, 22% of Nvidia’s and 27% of Intel’s revenues came from China.

However, as Chinese firms like Huawei continue to break through technological barriers and achieve significant milestones, hardliners advocating a tougher stance on China have become more vocal. Huawei, having faced difficulties due to sanctions, made a comeback by launching its 5G smartphone, the Mate60 Pro, which uses a 7 nm process, and topped sales charts in China last August. This year, it plans to produce 5 nm semiconductors without cutting-edge extreme ultraviolet (EUV) equipment, a technology that is only a year or two behind the industry’s most advanced processes.

According to Reuters, recent criticism from Republican lawmakers has emerged following Intel’s inclusion of its latest processors in Huawei’s new laptop models. US Representative Mike Gallagher expressed his bafflement by saying, “I do not understand why the Commerce Department continues to allow US technology to be supplied to Huawei.”

China’s Foreign Ministry condemned the additional US sanctions, accusing it of unfairly targeting Chinese companies through export controls. In retaliation, early this year, China’s Ministry of Industry and Information Technology instructed the country’s three major telecommunications providers — China Mobile, China Unicom, and China Telecom — to replace foreign-made CPUs by 2027, as reported by The Wall Street Journal on April 12.

Intel and AMD, which dominate over 95% of the global CPU market for telecommunications networks, have sold about half of their chips to the Chinese market. Following China’s directive, shares of Intel and AMD plummeted by 5% and 4%, respectively, while Nvidia’s stock also dropped nearly 3%.

A semiconductor industry insider commented, “China has its own CPU and GPU productions, but their performance and compatibility levels are still not widely accepted in the market. While China has adopted a tough stance, maintaining infrastructure without US chips will be challenging for the time being.” Business Korea