LDN - Business

China acquired recently banned Nvidia chips in Super Micro, Dell servers, tenders show

[April 23, 2024] By Eduardo Baptista, Fanny Potkin and Max A. Cherney

BEIJING/SINGAPORE (Reuters) - Chinese universities and research institutes recently obtained high-end Nvidia artificial intelligence chips through resellers, despite the U.S. widening a ban last year on the sale of such technology to China.

A Reuters review of hundreds of tender documents shows 10 Chinese entities acquired advanced Nvidia chips embedded in server products made by Super Micro Computer Inc., Dell Technologies Inc. and Taiwan's Gigabyte Technology Co Ltd after the U.S. on Nov. 17 expanded the embargo to subject more chips and countries to licensing rules.

Specifically, the servers contained some of Nvidia's most advanced chips, according to the previously unreported tenders fulfilled between Nov. 20 and Feb. 28. While the U.S. bars Nvidia and its partners from selling advanced chips to China, including via third parties, the sale and purchase of the chips are not illegal in China.

The 11 sellers of the chips were little-known Chinese retailers. Reuters could not determine whether, in fulfilling the orders, they used stockpiles acquired before the U.S. tightened chip-export restrictions in November.

Contacted by Reuters, Nvidia said the tenders specify products that were exported and widely available before the restrictions. "They do not indicate that any of our partners violated the export control rules and are a negligible fraction of the products sold worldwide," a spokesperson said.

The server makers said they complied with applicable laws or would investigate further.

Among the buyers were the Chinese Academy of Sciences, the Shandong Artificial Intelligence Institute, Hubei Earthquake Administration, the Shandong and Southwest universities, a tech investment firm owned by the Heilongjiang provincial government, a state-run aviation research centre, and a space science center.

None of the Chinese buyers and retail sellers responded to questions from Reuters about the matter.

Daniel Gerkin, a Washington-based partner at law firm Kirkland & Ellis, said Nvidia chips could have been diverted to China without a manufacturer's knowledge, given a lack of visibility into downstream supply chains.

If the manufacturer had performed sufficient due diligence, "it presumably would be challenging for the U.S. government to pursue an enforcement action", he said.

The U.S. Commerce Department told Reuters it could not comment on any potential ongoing investigations, but said its Bureau of Industry and Security monitored diversions of restricted chips, conducted end-use checks and examined potential breaches.

Officials would investigate credible allegations of violations, including through the use of shell companies, a spokesperson said.

Nvidia said systems built with its graphic processing units (GPUs) - chips that break computer tasks into smaller pieces and process them together - and resold by third parties must comply with U.S. restrictions.

"If we determine that any product was subsequently resold in violation of U.S. export control rules, we'll work with our customers to take appropriate action," the spokesperson said.

Super Micro said it complied with U.S. requirements on the sale and export of GPU systems to regions and parties that require licenses.

"If we become aware that a third party has exported or reexported without the required licenses, we investigate the matter and take appropriate action," it said.

In a letter to Reuters on behalf of Super Micro, U.S. law firm Clare Locke said its client "goes above and beyond what U.S. export restrictions require" by proactively taking steps to ensure its customers do not violate the curbs.

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A smartphone with a displayed NVIDIA logo is placed on a computer motherboard in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration/File Photo

In relation to the tenders that identified its products, Super Micro said they represent "older generation or general purpose servers not capable of the largest scale AI operations that were available in China prior to the export control regulations". The awarded suppliers "are not known Supermicro customers", the company said.

A Dell spokesperson said the company "found no evidence of shipping products configured with the restricted chips you listed to the entities you named", but that it would continue to investigate.

"Our distributors and resellers are required to comply with all applicable global regulations and export controls. If we become aware of a distributor or reseller that is not complying with these obligations, we take appropriate actions, including termination of our relationship," the spokesperson said.

Gigabyte said in an email that it complied with Taiwanese laws and international regulations. It did not respond to subsequent questions about tenders that identified its products as a source of banned Nvidia chips. Taiwan's economy ministry said it expected Taiwanese companies to respect U.S. export controls.

RESEARCH BENEFITS

The transactions were disclosed in a dozen of the tenders, which Reuters found on public databases that cover only a fraction of purchases by China's state entities. But the small snapshot shows China still has access to advanced chips that U.S. officials say could support AI for military applications, such as the modernization of China's defense forces or for developing weapons like hypersonic missiles.

Each of the purchases were limited to several servers and several dozen banned chips. Still, they could be useful for training models and conducting advanced research, according to seven analysts and industry executives.

The tenders - valued at between 71,500 yuan and 1.86 million yuan, or about $10,000 and $259,000 - did not specify the intended uses.

Under Chinese law, procuring agencies representing state or state-affiliated buyers must check that a supplier can fulfill the tender before it is announced as the winner and a contract is signed.

Reuters only analyzed tenders whose winners had been announced.

Companies and people accused of violating U.S. export controls can face civil or criminal penalties in the U.S., including fines of hundreds of thousands of dollars and up to 20 years in prison for individuals.

Reuters last year reported that an underground trade in Nvidia chips had emerged in China, as evident at Shenzhen's Huaqiangbei electronics market in June, before the U.S. widened its curbs. On a return visit in December, the vendors who had spoken to Reuters months earlier had gone, and other sellers said they did not know why they left.

Reuters couldn't establish why the vendors were no longer at the market.

($1 = 7.1932 Chinese yuan renminbi)

(Cherney reported from San Francisco. Additional reporting by Beijing newsroom, David Kirton in Shenzhen, Josh Ye in Hong Kong, Stephen Nellis in San Francisco, Alexandra Alper and Karen Freifeld in Washington and Ben Blanchard in Taipei; Editing by Brenda Goh and David Crawshaw)

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