Nvidia and AMD Agreed to Pay 15% of China Revenue to the U.S

Nvidia & AMD Secure China Chip Sales with Revenue-Sharing Deal, Signaling Thaw in US-China Tech War

Washington D.C. – In a meaningful development signaling a potential easing of tensions, Nvidia adn AMD have reached an agreement with the US government to resume sales of advanced AI chips to China. The deal, revealed today, requires both companies to remit 15% of their revenue from specific chip sales – Nvidia’s H20 and AMD’s MI308 – back to the United States.

The move reverses previous restrictions imposed by both the Trump and biden administrations, which had effectively blocked the export of these crucial components to Beijing over national security concerns. Nvidia had previously been prohibited from selling its H20 chips, a ban recently slated for reversal, while broader restrictions were in place sence 2023.

“We hope export control rules will let America compete in China and worldwide,” Nvidia stated, underscoring the company’s belief that a competitive landscape benefits US technological leadership. The company also emphasized the need for the US to maintain its dominance in artificial intelligence, stating, “America’s [artificial intelligence] tech stack can be the world’s standard if we race.”

The H20 chip was specifically engineered for the Chinese market following the initial imposition of US export controls. Nvidia CEO Jensen Huang has actively lobbied for the resumption of sales, reportedly meeting with former President Donald Trump last week. AMD has yet to publicly comment on the agreement.

Beyond the Headlines: A shifting Geopolitical Landscape

this agreement arrives amidst a broader trend of easing trade friction between the US and China. beijing has recently relaxed its grip on exports of rare earth minerals – vital components in numerous technologies – while Washington has lifted restrictions on certain chip design software firms operating within China. A 90-day truce in the ongoing tariffs war, agreed upon in May, is approaching its August 12th deadline, with ongoing discussions to potentially extend the pause.

The Bigger picture: Reshoring and tech Sovereignty

The revenue-sharing arrangement represents a novel approach to balancing national security concerns with the economic realities of a globalized tech industry. It allows US companies to tap into the lucrative Chinese market while together channeling funds back to the US government.

This development also coincides with a broader push for “reshoring” – bringing manufacturing and investment back to American soil.Apple recently pledged an additional $100 billion in US investment, building on a previous $500 billion commitment. Micron Technology is investing $200 billion in US-based facilities, including a new manufacturing plant in Idaho.Nvidia itself has announced plans for up to $500 billion in AI server construction, aiming to create fully American-made AI supercomputers.

Evergreen Insights: The Future of Tech Competition

The US-China tech rivalry is far from over. This agreement doesn’t signal a complete reversal of policy, but rather a tactical adjustment. Expect continued scrutiny of technology transfers and a heightened focus on securing supply chains. Export Controls as Leverage: The US is demonstrating its willingness to use export controls as a tool to influence China’s behavior and protect its technological advantages.
The Importance of AI: Artificial intelligence is at the heart of this competition, with both nations vying for leadership in this transformative technology.
Reshoring as a Long-Term Strategy: The trend of reshoring is likely to continue, driven by both economic and national security considerations. Revenue-Sharing as a potential Model: The revenue-sharing model could be applied to other sensitive technologies, offering a compromise between restricting exports and maintaining market access.This situation remains fluid, and Archyde will continue to provide updates as the story develops.

What are the potential long-term effects of the 15% revenue agreement on Nvidia and AMD’s profitability?

Nvidia and AMD Agree to Pay 15% of China Revenue to the U.S.

The U.S. Chip Export Controls and Their Impact

Recent developments have seen both Nvidia and AMD agreeing to stipulations set by the U.S. government regarding their sales within China. These stipulations require the companies to pay 15% of their China revenue back to the U.S. government. This isn’t a traditional tax, but rather a mechanism to offset the costs associated with enforcing export controls designed to limit China’s access to advanced semiconductor technology. The core issue revolves around preventing the use of American-designed chips in applications that could bolster the Chinese military.

Understanding the Export control Measures

The U.S. Department of Commerce implemented stringent export controls in October 2023,targeting advanced semiconductors and chip-making equipment. these controls aimed to slow down China’s technological advancements, notably in areas like artificial intelligence (AI) and high-performance computing (HPC).

Targeted Technologies: The restrictions primarily focus on chips with processing power exceeding specific thresholds, as well as equipment used in their manufacturing.

Licensing Requirements: companies wishing to export these technologies to China now require licenses, which are often tough to obtain.

Impact on Nvidia and AMD: Nvidia and AMD, as leading designers of GPUs and CPUs, were considerably affected by these regulations, as China represents a considerable portion of their revenue.

The 15% Revenue Agreement: How it effectively works

The agreement isn’t a straightforward tax levied on Nvidia and AMD. Instead, it’s a condition attached to licenses granted by the U.S. government allowing continued, albeit restricted, sales to China.

Key Details of the Agreement

Revenue Calculation: The 15% is calculated on the revenue generated from sales of specific chips deemed critical for national security.

Enforcement Mechanism: The funds are essentially a reimbursement for the administrative costs incurred by the U.S. government in monitoring and enforcing these export controls.

Duration: The agreement’s duration is currently undefined, and its continuation will likely depend on the evolving geopolitical landscape and the effectiveness of the export controls.

Choice to Complete Ban: This arrangement allows Nvidia and AMD to maintain a presence in the lucrative chinese market, albeit at a reduced profit margin, rather than facing a complete sales ban.

Why This Matters: Geopolitical and Economic Implications

This agreement has far-reaching implications, extending beyond the immediate financial impact on Nvidia and AMD. It signals a notable escalation in the tech war between the U.S. and china.

Geopolitical Ramifications

U.S.-China Relations: The move further strains already tense relations between the two superpowers. China views the export controls as an attempt to contain its technological rise.

Global Supply Chain: The restrictions disrupt the global semiconductor supply chain, possibly leading to shortages and price increases.

china’s Self-reliance: The controls are intended to spur China to develop its own domestic semiconductor industry, reducing its reliance on foreign technology.

Economic Consequences

nvidia and AMD’s Financial Performance: The 15% revenue payment will undoubtedly impact the profitability of both companies, although the exact extent remains to be seen.

Chinese Tech Sector: Limited access to advanced chips could hinder the development of China’s AI, HPC, and other high-tech industries.

Global Semiconductor Market: The overall semiconductor market is likely to experience increased volatility and uncertainty.

Nvidia’s Response and Product Adjustments

Nvidia has been proactive in adapting to the export control measures. They’ve developed specialized chips specifically for the Chinese market that comply with the U.S.regulations.

The H800 and H20 GPUs

H800 GPU: Nvidia introduced the H800 GPU, a modified version of its flagship H100, designed to meet the U.S.export control requirements while still offering substantial performance.

H20 GPU: More recently, Nvidia unveiled the H20 GPU, further tailored for the Chinese market, offering a balance between performance and compliance.

Performance trade-offs: While these modified chips allow Nvidia to continue selling into china, they typically involve some performance trade-offs compared to their unrestricted counterparts.

AMD’s Strategy and Challenges

AMD faces similar challenges and has also been working to navigate the export control landscape.

MI300 Series and Data Center Focus

MI300 Series: AMD has focused on its MI300 series of GPUs, designed for data center and AI applications, as a key product for the chinese market.

Compliance Efforts: AMD is actively working with the U.S. government to ensure its products comply with all applicable export regulations.

market share Competition: AMD is attempting to gain market share in China,capitalizing on potential disruptions faced by Nvidia.

Future Outlook: What to Expect

The situation surrounding U.S. chip export controls and the Nvidia/AMD agreement is dynamic and subject to change.

Potential Scenarios

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