Nvidia declines on warning that China restriction may hurt sales

NVIDIA fell in late trading after warning that new rules governing the export of artificial intelligence chips to China may affect hundreds of millions of dollars in revenue.

The stock dropped as much as 5.1 per cent in extended trading following the disclosure that Nvidia’s A100 and forthcoming H100 products will require approval from the US government before they can be sold to Chinese customers. The US is concerned that these processors might be used by the military, Nvidia said in a regulatory filing on Wednesday (Aug 31). The company received the notification on Aug 26.

Nvidia is already facing a sales slump, triggered by lower demand for personal computers. On the day before it got the notice, the company gave a disappointing forecast, saying it needed to cut shipments to reduce an excess of inventory. Now it has a new headache. If the company doesn’t get permission to sell the chips into China, US$400 million in sales may be hurt, Nivida said. That represents about 6.8 per cent of revenue in the fiscal third quarter.

“We are working with our customers in China to satisfy their planned or future purchases with alternative products and may seek licences where replacements aren’t sufficient,” the company said in an emailed statement. “The only current products that the new licencing requirement applies to are A100, H100 and systems such as DGX that include them.”

US companies are under increasing government scrutiny over their dealings with China, the largest market for semiconductors, amid a growing rivalry between the world’s 2 largest economies. The US is trying to limit China’s access to technology, arguing that the country represents a security risk. China, in turn, is trying to build its own domestic capabilities to make itself less dependent on the US, which still dominates the design and development of the crucial technology.

Advanced Micro Devices said Wednesday that it received a similar notice from the government, though it doesn’t expect the effect to be material. “At this time, we do not believe that shipments of MI100 integrated circuits are impacted by the new requirements,” the company said in a separate statement.

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According to Nvidia’s filing, the government’s new rules specify chips with certain performance capabilities.

The rules apply to both China and Russia, though Nvidia and AMD no longer sell to the latter country. BLOOMBERG