The H20 chip, which Nvidia designed to not require an export control license, could be banned, Jefferies analysts said
As the U.S. reportedly considers imposing a tougher trade rule on allies selling advanced chipmaking equipment to China, it could also ban U.S.-based Nvidia $NVDA from selling a chip it specifically designed for the Chinese market, according to Jefferies analysts.
When the U.S. does its annual review of U.S. semiconductor export controls in October, “it is highly likely that” Nvidia’s H20 chip, one of three the chipmaker designed to not require an export control license, will be banned for sale to China, Jefferies analysts wrote in a note. The ban could happen three ways: through a “product specific ban, lowering the computing power cap, and/or putting a cap on memory capacity,” analysts wrote.
Some U.S. companies, including Intel $INTC and Qualcomm $QCOM, received special licenses to sell to blacklisted Chinese chip firms including Huawei, but those were revoked in May. However, despite U.S. efforts to tighten export controls on semiconductor materials sold to China, firms in the country have reportedly been able to access advanced chips from Nvidia through resellers and even by renting Nvidia-powered servers from Google $GOOGL, Microsoft $MSFT, and other tech firms.
The U.S. could also extend export controls on chips sold to other countries in the region, such as Malaysia, Indonesia, and Thailand, or extend the controls to overseas Chinese companies, although this would be harder to implement, according to analysts.
The Biden administration is reportedly debating using an export control called the foreign direct product rule, which would impact companies including Japan’s Tokyo Electron and Dutch chip machine-maker ASML $ASML. Officials can invoke the rule to block the export of any good to any country if it is manufactured with a certain percentage of U.S. intellectual property components. Global chip stocks fell following the news and after remarks by former President Donald Trump on Taiwan. However, Jefferies and Bank of America $BAC analysts said the chip-stock selloff was a market overreaction, and the FDPR consideration was likely misunderstood.
“The most likely scenario is for the US to impose FDPR on more Chinese companies,” Jefferies analysts wrote, “so that those companies would not be able to buy SPE from the like of ASML and Tokyo Electron, even if the Japanese & Dutch export restrictions would allow them to do so.”
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