The Chinese government is investigating US chipmaker NVIDIA for allegedly violating its antitrust law by acquiring interconnect provider Mellanox.
On Monday, the State Administration for Market Regulation made a statement on China Central Television announcing the investigation, but did not discuss the details of NVIDIA's alleged violations.
The authority approved NVIDIA's acquisition of Mellanox, an Israeli company, in 2020 for $6.9 billion with certain conditions. These were aimed at preventing the tech giant from restricting competition in the markets for GPU acceleration, private Internet connection devices and high-speed Ethernet adapters.
SEE: EU investigates NVIDIA's deal with Run:ai
According to Bloomberg, Mellanox was required to provide information about new products to its Chinese rivals within 90 days of making them available to NVIDIA and give them the opportunity to ensure that their own products were compatible. The conditions also included prohibitions on bundling products, discrimination against customers purchasing products separately, and unreasonable trading conditions.
An NVIDIA spokesperson told TechRepublic: “NVIDIA wins on merit, as reflected in our benchmark results and value to customers, and customers can choose the best solution for them.
“We work hard to deliver the best products we can in every region and honor our commitments everywhere we do business. “We will be happy to answer any questions regulators may have about our business.”
The latest shot in the chip war between the United States and China
The investigation represents just the latest step in the years-long fight for dominance in the lucrative semiconductor market between the United States and China. NVIDIA is the leading supplier of artificial intelligence and gaming chips, announcing record revenues of $30 billion (£24.7 billion) in the second quarter of 2024.
The United States wants to maintain its current sovereignty by blocking China's access to NVIDIA's next-generation hardware, which is crucial for running advanced AI models. In addition to financial motivations, the United States has also expressed concerns about China's development of AI for military purposes.
In 2022, the United States applied its first set of chip-related export controls on the sale of semiconductors to Beijing and, separately, banned NVIDIA from selling its most advanced chips to Chinese companies. In response, NVIDIA developed China-specific A800 and H100 chips that complied with the new controls, allowing it to keep customers in the country.
That same year, the United States passed the CHIPS Act, which provided needed investments in semiconductor research and manufacturing incentives and bolstered the U.S. economy, national security, and supply. He also launched a plan for an AI Bill of Rights to help regulate AI at the national level. Intel, TSMC, Texas Instruments and Samsung, the world's largest memory chip maker, have announced plans to build factories in the US.
SEE: Global chip shortage: everything you need to know
Then, in August 2023, China's Ministry of Commerce imposed export controls on items related to gallium and germanium “to safeguard national security and interests.” These rare metals are essential in chip production, with China producing 98% and 54% of the world's supply of gallium and germanium, respectively. According to data from the Financial Times, in the year since then the cost of minerals has almost doubled.
In October last year, the United States imposed a second set of semiconductor export restrictions, closing some of the loopholes that NVIDIA exploited with the A800 and H100. Since then, the chip giant has been preparing to launch new iterations that circumvent the updated rules.
However, the restrictions have had a big impact on NVIDIA's profits in China. The country accounted for only 16.9% of its revenue in 2023, 9.5% less than in 2021, according to its latest financial results.
Last week, the Biden administration announced its third set of restrictions on semiconductor exports to China, expanding the list of banned technologies. Beijing responded with a statement, declaring it a “typical act of economic coercion and non-market practices.”
“The United States says one thing and does another, constantly generalizing the concept of national security, abusing export control measures and implementing unilateral intimidation,” the Commerce Ministry spokesperson said. “China firmly opposes this.”
In response, China quickly banned the sale of germanium and gallium to the United States, closing loopholes in its export controls by 2023, and added a number of new American defense technology companies that cannot do business in China.
The quest for AI sovereignty increases around the world
It is not just the United States and China that want to reduce their dependence on other countries for AI chips. Both Japan and the Netherlands have reached agreements with the White House to restrict the sale of chip manufacturing kits to China.
The UK blocked most license applications for companies seeking to export semiconductor technology to China in 2023. That same year, the UK government announced it would dedicate £100 million ($126 million) to encouraging hardware development. of AI and shore up a potential shortage of computer chips. Amazon Web Services also announced plans to invest £8 billion in data centers in the country over the next five years.
SEE: UK government announces £32m for AI projects after cutting funding for supercomputers
The European Union offered 43 billion euros ($46 billion) in subsidies to boost its semiconductor sector with its European Chip Law, which was adopted in July 2023. The bloc also has a lofty goal of producing 20% of the world's semiconductors by 2030.
Global antitrust investigations into NVIDIA
NVIDIA is having trouble mediating the chip war between the United States and China. In addition to Beijing's investigation, the US Department of Justice is investigating whether the company violated its antitrust laws by punishing customers who also buy from its competitors and making it difficult to switch suppliers, according to Bloomberg.
SEE: The rise of AI could cause a global chip shortage by 2026
Benoît Cœuré, president of the French competition authority, also said at a July press conference that NVIDIA could face antitrust charges in the country “one day,” Bloomberg reported.
