Nvidia and AMD See 15% of China Chip Sales Revenue Flow to U.S., FT Reports

Nvidia & AMD Strike Deal with US Government to Resume Chip Sales to China

Washington D.C. – In a surprising turn of events, Nvidia and Advanced Micro Devices (AMD) have reportedly reached an agreement with the U.S. government allowing them to resume sales of key chips to China. The deal, first reported by the Financial Times, involves the chipmakers sharing 15% of the revenue generated from thes sales.

The agreement centers around Nvidia’s H20 and AMD’s MI308 chips, critical components for artificial intelligence and high-performance computing. Export licenses will be granted in exchange for the revenue share,a move that circumvents broader restrictions aimed at limiting China’s access to advanced semiconductor technology.

This unprecedented arrangement highlights the complex geopolitical landscape surrounding the semiconductor industry. It comes amidst ongoing trade tensions and former President Donald Trump’s continued advocacy for domestic chip manufacturing. Trump, who reportedly met with Nvidia CEO Jensen Huang last week, had previously threatened a 100% tariff on semiconductor imports unless companies established production facilities within the United States.

Nvidia acknowledged following U.S. government regulations regarding international market participation.

Why This Matters: The Shifting Sands of Semiconductor Control

This deal isn’t simply about two companies resuming sales. It signals a potential shift in U.S. strategy regarding technology exports.While the long-term goal remains bolstering domestic semiconductor production, the immediate priority appears to be maintaining a degree of influence – and revenue – within the crucial Chinese market.

The Broader Context:

Geopolitical Implications: The semiconductor industry has become a central battleground in the U.S.-China tech rivalry. Controlling access to advanced chips is seen as vital for national security and economic competitiveness.
The CHIPS act: The 2022 CHIPS and Science Act aimed to incentivize domestic semiconductor manufacturing. This deal suggests that legislative efforts alone may not be sufficient to achieve complete supply chain independence.
Global Supply Chains: The incident underscores the interconnectedness of global supply chains and the challenges of decoupling from key markets like China.
Future Trade negotiations: This arrangement could set a precedent for future trade negotiations, where market access is tied to revenue-sharing agreements or other concessions.

The long-term effects of this agreement remain to be seen, but it undoubtedly marks a significant moment in the ongoing saga of semiconductor control and international trade.

how do U.S. export controls intended to limit China’s technological advancement contribute to revenue flowing back to the U.S. from Chinese chip sales?

The Shifting Landscape of Semiconductor Revenue

Recent reporting by the Financial Times indicates a significant development in the global semiconductor industry: approximately 15% of revenue generated from chip sales in China is now flowing back to the United States. This figure primarily stems from the sales of chips manufactured by Nvidia and AMD, two key players in the high-performance computing and graphics processing unit (GPU) markets. This trend highlights the complex interplay of global supply chains, geopolitical factors, and the increasing demand for advanced semiconductors.

Key Drivers Behind the Revenue Flow

Several factors contribute to this notable shift in revenue.

U.S. Chip Design Dominance: Both Nvidia and AMD are U.S.-based companies,meaning the intellectual property (IP) and core design of their chips originate in the United States. Even when manufacturing occurs overseas, royalties and licensing fees return to the U.S.

China’s Semiconductor Demand: China remains a massive consumer of semiconductors,driven by its burgeoning tech sector,including artificial intelligence (AI),data centers,and electric vehicles (EVs).

Export Controls & Restrictions: U.S. export controls, particularly those targeting advanced AI chips, have inadvertently channeled demand towards companies like Nvidia and AMD who can navigate the regulations (albeit with restrictions) and continue supplying the Chinese market. This has increased the value of their exports.

AI Boom & GPU Demand: The explosive growth of AI applications has fueled unprecedented demand for GPUs, a market where Nvidia and AMD hold a dominant position. China’s AI ambitions are a major driver of this demand.

High-Performance Computing (HPC): Demand for HPC chips in China, used for scientific research and industrial applications, also contributes to the revenue flow.

Impact on Nvidia and AMD

This situation presents a mixed bag for Nvidia and AMD.

Increased Revenue: the flow of revenue back to the U.S. directly benefits these companies’ bottom lines, bolstering their financial performance.

Geopolitical Risks: Continued reliance on the Chinese market, coupled with ongoing geopolitical tensions and potential for further export restrictions, introduces significant risk.

Supply Chain Diversification: Both companies are actively exploring supply chain diversification strategies to reduce their dependence on any single region, including expanding manufacturing capabilities outside of Taiwan.

Market Share Dynamics: The restrictions on competitors like Intel in certain segments of the Chinese market have potentially allowed Nvidia and AMD to gain market share.

The Role of Export Controls: A Closer Look

The U.S. government’s export controls, designed to limit China’s access to advanced technologies with potential military applications, have had unintended consequences. While aiming to slow China’s technological advancement, they’ve together increased the economic benefit to U.S. chip designers.

Specific Restrictions: The controls primarily target advanced GPUs capable of supporting AI training and large language models (LLMs).

Compliance Challenges: Companies must navigate complex compliance procedures to ensure they adhere to export regulations.

Impact on Chinese companies: Chinese tech companies are actively seeking choice chip sources and investing heavily in domestic semiconductor development to reduce their reliance on foreign suppliers.

China’s Response: Investing in Domestic Chip Production

China is aggressively pursuing self-sufficiency in semiconductor manufacturing.

Government Funding: Massive government investment is flowing into domestic chip production, aiming to create a robust and independent semiconductor ecosystem.

SMIC Expansion: Semiconductor Manufacturing international Corporation (SMIC), China’s largest chipmaker, is expanding its production capacity and developing advanced manufacturing processes.

Talent Acquisition: China is actively recruiting semiconductor talent from around the world to accelerate its domestic capabilities.

Focus on Mature Nodes: While lagging in leading-edge manufacturing, China is making significant progress in mature node technologies, which are crucial for many applications.

Implications for the Global Semiconductor Industry

This trend has broader implications for the global semiconductor landscape.

Reshoring & Friend-shoring: The situation is accelerating the trend of reshoring and friend-shoring of semiconductor manufacturing, with governments worldwide incentivizing domestic production.

**Increased competition