How to comply with the U.S. government's export ban and do as much business as possible with Chinese customers? For a long time, this will be one of the most important issues that chip maker Nvidia will always have to face.

Huang Renxun, founder and CEO of Avida, who likes to wear leather clothes, once thought he had found the answer. that is, to continuously introduce "castrated version" of high-power chips to match the export control regulations updated by the U.S. government from time to time and continue to do business with Chinese customers . Recently, he publicly stated in the United States that Nvidia will produce chip products that meet the new regulations and then return to the Chinese market. He also stressed that "Nvidia wants to do business with everyone".

This is a continuation of the "castrated version" of the idea. In October 2022, the United States introduced the strictest chip export ban in history, and high-power chips such as Nvidia A100 could not be exported to China. Huang Renxun instead introduced the A800 chip with reduced transmission speed performance parameters to export to China. In October 2023, the United States revised its chip export control policy, and "castrated" chips such as A800 were also banned. Nvidia intends to repeat the old technique to further "castrate" the performance of the chip in line with the new regulations, continue to export to China. At present, related products are being tested internally.

The U.S. government has seen this line of thinking clearly. Recently, U.S. Secretary of Commerce Raymond "warned" about the idea of "castration". She said that to make the products of chip companies meet the substantive purpose of the U.S. export control policy, rather than just meet the technical parameters of export control, if it conflicts with the substantive purpose, even if it meets the technical parameters, the U.S. Department of Commerce can quickly put these products into the scope of control.

This will become a huge variable affecting the performance of a large number of international chip manufacturers such as Nvidia, and it will also give Chinese chip companies the opportunity to fill the market space. The Chinese business of high-power chips should not have only a few traditional protagonists.

How does castration work?

Whenever the U.S. government introduces or updates export control measures for high-computing chips, the share prices of Nvidia and a number of international chip manufacturers will plummet, and then pull back, and in a while, it will hit a new high. As investors become familiar with this cycle, they will also find that they will always come up with products that comply with export control policies and continue to do business with Chinese customers.

In October 2022, the U.S. government issued the most stringent chip export control regulations in history, prohibiting the export of high-power chips to China by setting limits on important technical parameters. This led to the A100 chip, the leading product of Nvidia at that time, unable to sell to Chinese customers, affecting the performance. However, Huang Renxun quickly found a way to deal with it. He introduced A800 chips that met the requirements of export control technical parameters and continued to export to China, stabilizing his performance. Thus, the idea of "castration version" began.

The U.S. government's October 2002 version of export control measures identified two standards for high-power chips. One is that the peak value of the calculation force exceeds or reaches 4800TOPS, and the other is that the transmission rate exceeds or reaches 600GB/sec. Once the chip product meets this performance parameter, export controls are triggered. The performance parameters of the NVIDIA A100 chip are in this column.

"there is an 'and' relationship between these two technical parameters, which needs to be reached at the same time to trigger the export ban. Nvidia has made good use of this policy framework and launched the A800 chip." The head of the procurement department of a Chinese cloud computing company explained to a reporter from China Business News that the A800 chip did not meet the two parameter standards at the same time, so it was in line with the US export ban at the time and could be sold to China.

The choice of A800 chip is to reduce the standard on the transmission rate and maintain the level of A100 on the peak value of calculation force , which also takes into account the needs of Chinese customers at that time. "AI large model training requires relatively high peak value of chip computing power. In contrast, transmission rate is not so important. As long as it is less than the level of" 10,000 card large model ", the impact of reducing transmission rate can be tolerated." The technical director of a Chinese AI start-up company told reporters.

the transmission rate of A800 chip is 2/3 of that of A100. after "castration", it has become a "special supply version" exported to China and has received good sales in the Chinese market. This has confirmed Avida's idea of maintaining the peak value of computing power and making an issue of transmission rate. after A800 chip, Avida has introduced H800 as a special supply version for export to China .

The H800 chip is "castrated" from the H100 chip. The peak value of H100 is 19.5TFLOPS, the transmission rate is 900GB/sec, and the performance parameters are higher than those of A100 chip. After "castration", the performance of the H800 chip is slightly different, and the more important thing is to reduce the transmission rate to below 600GB/sec as stipulated by the export control, which is completely consistent with the thinking of the A800 chip.

The idea continues

The devil is one foot high, the way is ten feet high. The U.S. government's export control policy has always been in the habit of "patching". Therefore, a year later, the U.S. Department of Commerce and its Bureau of Industry and Security (BIS) carried out a comprehensive upgrade of the October 2022 chip export ban , some of which were specifically aimed at Nvidia's "castration" idea.

"in October 2023, the updated ban will be changed to use total processing performance to identify chips that need export control," explained the head of the purchasing department of China's cloud computing enterprises. he believed that compared with the two indexes of computing power peak and transmission rate banned in October 2022, the total processing performance index involves more factors, and it is more difficult for manufacturers such as Avida to evade .

according to the updated export ban, as China's special version of the A800 and H800 chips, have been unable to export to China. Nvidia began to seek a new China-specific version of the chip.

the legal documents related to the 2023 version of the U.S. chip export ban consulted by the reporter show that there are two types of chips to be controlled, one is chips with a total processing performance exceeding or reaching 4800TOPS, or chips with a total processing performance exceeding or reaching 1600TOPS and a performance density of 5.92; Second, the total processing performance is between 2400 and 4800TOPS, the performance density is between 1.6 and 5.92, and the total processing performance is between 1600 and 2400TOPS, performance density between 3.2~5.92 chip.

According to the updated control policy, in the first case, the buyer of the chip cannot be a data center in a controlled country or region, nor can it be used to design the relevant data center unless approved by the relevant US authorities; in the second case, Export to a controlled country or region requires an application to the relevant US authorities for approval.

a technician from a state-owned chip enterprise explained to the reporter that the total processing performance of the chip involves a comprehensive calculation of various factors to obtain data parameters. the performance density is obtained by dividing the total processing performance by the area of the chip, which is a comprehensive index. in fact, it expands the scope of the technical parameters of the control standard, making it not as simple as the export ban in October 2022. "at that time, just adjust a technical parameter indicator." He said.

Nvidia is still trying to solve the problem of "castration. According to the contents of the quarterly telephone exchange officially disclosed by Nvidia, CFO Colette Kres (Colette Cress) said that the company is looking for a new product portfolio to make these products technically comply with the updated export control regulations. Ten days later, Huang Renxun also made a similar statement.

"Nvidia will always have a way, nothing more than to seek a balance between more technical parameters, so that the final index is lower than the export control standard, which may be more troublesome, but it is not impossible. The Chinese market is worth it." the head of the procurement department of the aforementioned cloud computing company told reporters.

Control methods bring variables

As long as the way U.S. export controls work is to "draw a line," Nvidia will always have a way. The US government seems to be aware of this.

In response to Nvidia's idea of "castration-special offer", Raymond threw out the "substantive teleology". At the Reagan Defense Forum held a few days ago, Raymond said that chip manufacturers should be allowed to understand the substantive purpose of government export controls, not just to meet certain technical parameters . She also emphasized that if you redesign a chip around a "specific boundary" (and this chip conflicts with the purpose of export control), then the Department of Commerce will control these chips (export) the next day .

"We have to agree with industry." Raymondo said.

Raimundo's statement was seen as a public warning to the U.S. government about Nvidia's strategy. It is understood that the US government is setting up a team of more than 100 people, which is mainly responsible for semiconductor work, so as to improve the technical capabilities of the US Department of Commerce and BIS in artificial intelligence and other aspects.

"The scope of control is increasing." When talking about this issue, a senior lawyer who has been engaged in export control for a long time said that the U.S. government has a wealth of export control tools, including various bills, lists, and some daily management methods. These tools can be used at any time to influence chip manufacturers like Nvidia.

The U.S. government has begun to send pressure to Nvidia. 2023 1After the implementation of the new export control regulations in October, there is a 30-day buffer period during which previous orders can still be delivered. The market once believed that Avida would use the buffer period to grab orders to deliver specially supplied chips for export to China, but six days after the new export ban was issued, the U.S. government withdrew the 30-day license exemption period . Avida said in a notice issued by Avida that the export ban on GPU products would take effect immediately after receiving the notice from the U.S. government.

The U.S. chip industry, including Nvidia, has been calling on the U.S. government to be cautious about chip export controls. Raimundo sees it as a "constant balancing process," which she admits is difficult because "I don't know if the rules are perfect or if it is possible to be perfect".

"if there is no updated export ban, A800 and H800 China's special supply chips will bring more revenue to Avida in 2024. as far as I know, Avida's foundry has not yet opened enough capacity to produce A800 and H800 in 2023. after these two special supply chips are included in the scope of export control, there should be no market in other countries and regions that are not subject to export control, you can buy A100 and H100 directly." The aforementioned cloud computing company procurement department head told reporters.

Unbreakable Market

Just as investors have become accustomed to the introduction or renewal of the U.S. export ban, which will bring down the share prices of major international chip manufacturers such as Nvidia, they have also become accustomed to another phenomenon, that is, the rise in the share prices of Chinese chip companies. Cambrian (688256.SH), Jingjiawei (300474.SZ) and SMIC (688981.SH) have had more than one such experience.

According to Caixin Media, Huang Renxun publicly stated at a recent forum held by the "New York Times" that "as many as 50 Chinese companies are developing technologies that compete with Nvidia". Obviously, although Nvidia is the leader, the huge commercial value of the Chinese market makes it impossible to give up.

according to the information disclosed by Avida, CFOColette Kress disclosed a set of financial data related to the data center business at the three-quarter report telephone conference: Avida's sales in China and other export-restricted areas after the renewal ban accounted for about 20% ~ 25% of the total sales of the data center.

Nvidia's publicly disclosed full-year results for 2022 show that Nvidia's full-year sales revenue in mainland China was $7.111 billion, accounting for 26.4 per cent of total revenue.

"We have to be prepared for everything." The person in charge of the aforementioned cloud computing procurement department told reporters that on the one hand, they are waiting for the latest version of NVIDIA's chips that meet export control measures. On the other hand, they have already adopted domestic chips in some links. he said frankly that the situation is already very clear. there is no possibility of loosening the US export control policy in the short term. the configuration of domestic chips is a must.

Nvidia "castration" after the high computing power chip, gradually is no longer the only choice of Chinese customers.

Raymond knows the concerns of these international chip makers. "If we adopt too many export controls, it will reduce the income of American companies, and they need the money to continue to innovate". She said that the U.S. government must have continuous communication and exchanges with the chip industry to allow companies to clarify the government's intentions. She hopes that the communication can be more clear about the intentions (related regulatory policies) and the effects to be produced, and then the business community will comply.

Is Nvidia ready?