Nvidia warns of sales slump from new US chip licensing requirements for China

Nvidia Corp. could lose up to $400 million in quarterly sales after the U.S. imposed new licensing requirements on shipments of some of its most advanced chips to China, the chipmaker said Wednesday.

Nvidia, the largest U.S. chipmaker by market value, said in a regulatory filing that it was notified on Friday that it would need to obtain a license from the U.S. government before shipping certain cutting-edge chips to China and Russia.

The company does not sell chips to Russia, she said, but the China restriction could affect its outlook for about $5.9 billion in sales in the current quarter. The company is negotiating with Chinese customers to fulfill planned purchases with other products and may seek licenses from the government if substitutes are not sufficient, it said.

The U.S. imposed the requirement to address the risk of these products falling into the hands of military users in China and Russia, Nvidia said in its filing.

The rule is not limited to Nvidia and sets a performance threshold for chips that handle advanced artificial intelligence calculations that are increasingly important to businesses, governments and the military, according to an industry representative. Nvidia dominates the market for these types of chips.

Advanced Micro Devices Inc.

AMD -2.38%

said it was also notified of the new demand for licenses, which prevented it from shipping an advanced chip aimed at the AI ​​and high-performance computing markets. The company said it does not expect a material impact on its business.

The new licensing requirements come at a a tough time for chip makers. Demand for personal computers, video games and smartphones, among other gadgets, has slowed with rising inflation and a worsening economic outlook, putting pressure on people’s spending ability.

Shares of Nvidia fell more than 5% in after-hours trading on Wednesday.

At the beginning of August Nvidia reported revenue of $6.7 billion for the quarter ended July 31, about 17% below May’s forecast of $8.1 billion, amid a 33% drop in gaming revenue to $2.04 billion.

Intel corp.

INTC -1.05%

in July reported a surprise quarterly loss and cut its full-year outlook, reflecting a decline in PC purchases and product slowdowns.

Nvidia chips affected by the licensing rule include its A100, a powerful chip introduced two years ago which is used in large data centers to perform artificial intelligence calculations. The company’s so-called H100 chips, a more advanced AI chip announced this year, are also affected, the announcement said.

The U.S. Commerce Department, which is responsible for export restrictions, declined to comment on the policy changes, but said it was taking action to protect U.S. national security and prevent China from acquiring U.S. technology to develop its military and participate in other activities that the US opposes.

The Chinese Embassy in Washington did not immediately respond to a request for comment outside regular business hours.

Restrictions on US deals with China and Chinese chipmakers have become commonplace in recent years as tensions between the countries have escalated. The US has also tried to stop exports of chip-making equipment to China to hinder the country ambition to dominate chip factories.

US export restrictions have prevented on the expansion of key Chinese chipmakers, including the largest,

Semiconductor Manufacturing International corp.

981 2.46%

They have also made it more difficult for China to obtain advanced chips from contract manufacturers such as

Taiwanese semiconductor manufacturing Co.

TSM 0.68%

the largest in the world.

President Biden’s new $52 billion push to boost U.S. chip production included provisions ban on grantees from building modern factories in China.

Previous curbs on chip sales in China have reduced sales to American companies, especially since the U.S. added telecom giant Huawei Technologies Co. to an export blacklist in 2019. But the licensing requirements Nvidia is subject to could have a more significant impact than usual on a company, potentially altering the competitive landscape.

The Santa Clara, Calif.-based company said rivals could benefit even if the U.S. grants needed export approvals. “The licensing process will make our sales and support efforts more cumbersome, less secure and will encourage customers in China to seek alternatives to our products, including semiconductor suppliers based in China, Europe and Israel,” Nvidia said in regulatory documentation.

Nvidia said the rules prevented the company from shipping future chips that hit unspecified performance thresholds similar to the A100 without first obtaining a license. The company will also need a license to support or develop products subject to the restriction. Those requirements, it said, could affect its ability to complete development of the H100 on time and could force it to move some operations out of China.

Write to Asa Fitch c [email protected]

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