Chip CEOs urge US to study impact of Chinese restrictions and pause

(Bloomberg) – Executives from the biggest U.S. chipmakers told Biden officials this week that the administration should study the impact of curbs on exports to China and pause before implementing new ones, according to people familiar with their discussions.

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In meetings in Washington on Monday, Pat Gelsinger of Intel Corp., Jensen Huang of Nvidia Corp. and Cristiano Amon of Qualcomm Inc. have warned that export controls risk undermining US industry leadership. Biden officials listened to the presentations but made no commitments, said the people, who asked not to be identified because the discussions were private.

The chip industry is trying to manage growing tensions between China and the United States. Companies are being forced to limit shipments to their biggest market by Washington, which has cited national security concerns over the Asian nation’s acquisition of certain capabilities. One of the leaders against the current rules restricting the export of AI hardware to China, saying the policy has not achieved the intended result of slowing down China’s AI development.

The Biden team has been exploring ways to further tighten existing restrictions — for example, targeting chips made by Nvidia specifically for the Chinese market, according to people familiar with the matter. In addition to US restrictions, US chipmakers such as Micron Technology Inc. have faced actions from Beijing that have hurt their ability to do business in the country.

Representatives of the three companies declined to comment, as did a spokesperson for the National Security Council.

US National Security Adviser Jake Sullivan said on Friday he agreed with the leaders that the approach should be a “small yard, high fence” – effective but limited. He defended the administration’s actions to date as just that, saying the measures were targeted and had virtually no impact on U.S.-China trade for most chips.

“The vast majority of US-designed chip sales to China have continued unabated,” he told the Aspen Security Forum. “It continues to this day.”

He hinted that further restrictions could follow, but would only be implemented after robust discussions with the companies affected.

“We will continue to review very targeted, very specific restrictions on technology with national security and military applications and make judgments in a rigorous, careful, methodical manner – and, yes, in full consultation with our private sector,” he said.

During Monday’s discussion, Intel’s Gelsinger told Sullivan, Secretary of State Antony Blinken and other officials that further restricting what his company does in China jeopardizes a key Biden policy of bringing chip production back to the United States, the people said.

Without orders from Chinese customers, there will be much less need to move forward with projects such as Intel’s planned factory complex in Ohio, the executive said, according to the people. Nvidia’s Huang said limiting sales of some of its chips in China has only made the alternatives more popular.

Read more: Intel’s $20 billion Ohio chip hub will be the world’s largest

Overall, the executives argued that while Chinese customers have been forced to buy more chips to make the banned products work, it hasn’t significantly slowed them down. The availability and quality of the software they use more than compensates for any hardware limitations, they argued.

Gelsinger, who also spoke at the Aspen Security Forum, mentioned the meetings in Washington during his appearance on Wednesday.

“We communicated a very important message about China,” he said. “Currently, China accounts for 25-30% of semiconductor exports. If I have 20% or 30% less market, I have to build fewer factories.

It is in the interests of the United States to allow its chip companies access to the Chinese market in general, as revenues from that country help fuel research and development, he argued. And this is necessary to keep the country ahead in new technologies such as quantum computing.

Qualcomm derives more than 60% of its revenue from the China region, where it supplies components to smartphone makers such as Xiaomi Corp. For Nvidia, China accounts for around a fifth of sales.

So far, chip makers such as Applied Materials Inc. have been hardest hit in terms of revenue, being forced to cut billions of dollars from their forecasts. But the restrictions, which the companies fear will be extended to other chip classes, are also affecting some device makers.

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