British chip company Arm has concluded that it is unlikely the US and UK will approve the sale of its Neoverse V series chip design to China’s Alibaba due to the performance being too high and the potential for military usage. This is the first time Arm came to the conclusion that it wouldn’t be able to sell cutting-edge chip designs to China, according to insiders speaking to the FT. One analyst told Tech Monitor this will likely further spur China’s semiconductor self-sufficiency efforts.
Recent months have seen Joe Biden’s administration ramp up the China semiconductor trade war, restricting supply of vital manufacturing equipment to companies like SMIC, as well as banning US firms such as Nvidia and AMD from selling AI chips to the Chinese.
In response, China is expected to reveal a $143bn investment package designed to boost its own semiconductor sector. The new incentives will reportedly be rolled out early next year, and will see China join the US in offering a significant fiscal package to support domestic chip production.
While there has been some scaling back of further sanction plans from the US, insiders close to Arm told the FT the company determined export licences were unlikely to be granted for the most advanced designs.
The Neoverse chips are designed to meet the growth of data from 5G and internet-connected gadgets, designed for data centres with several new core designs released this year.
The problem is a multi-national agreement known as Wassenaar, signed by 42 nations, that stops dual-use technology from being diverted for military use. This requires explicit export licences and Arm concluded this was unlikely to happen with the Neoverse V.
The decision is linked to the updated US semiconductor export restrictions from October where technical requirement limits were introduced. Arm is able to sell to Chinese companies and can apply for a licence to sell its most advanced technology, but the chance of success is very low if it has any military application – which could apply to the latest chips.
The US government hasn’t commented on any potential blocking of the sale of the latest Arm chips to China and Arm hasn’t applied for a licence.
A UK government spokesperson told the FT it wouldn’t comment on individual licence applications, adding it was “committed to supporting UK businesses to engage with China in a way that reflects the UK’s values and takes account of national security concerns.”
Trying to catch up
Chinese companies rely heavily on Arm’s chip designs and the company, with a significant presence in the US, is seen as particularly vulnerable to President Joe Biden’s use of export controls against China.
The FT spoke to an engineer working at Alibaba’s T-Head chips department who said US sanctions were creating a have and have not-style system between Chinese cloud providers and those from the West like AWS.
The government in Beijing is under pressure to boost its domestic capabilities. As well as banning the sale of chips, the US has also been using export controls to restrict the supply of vital lithography machines and other equipment used in chipmaking.
Whether the suggested $143bn investment will help China develop its own advanced chips more quickly is questionable. Without access to leading-edge lithography technology supplied by Dutch company ASML, Chinese chipmakers are unable to match the manufacturing capabilities of the likes of TSMC and Samsung, which are both developing small, efficient chips on a 3nm process node to use in smartphones and servers.
Chinese manufacturers have been investing in older process node technology in recent years, and the country’s biggest chipmaker, SMIC, reportedly built a 7nm chip earlier this year. Though this came as a surprise to many people outside China, it indicates the company is still a distance behind its foreign rivals.
Josep Bori Research Director, Thematic Intelligence at Global Data said the decision by Arm to not apply for a sales licence “makes sense as the US export bans are a moving target and their intent is crystal clear. Engaging in an effort to find exceptions and loopholes, or to even consider redesigning products to fall within the current export ban thresholds, is doomed to fail, as the US will just turn around and make another adjustment to its export bans.”
Bori says the US public listing planned by Arm could be at risk if it becomes antagonistic towards the export controls and domestic regulatory authorities and the move will have short-term negative impacts on China, but longer term will spur the country to further drive self-sufficiency efforts.
“In the short term, such a decision will further curtail China’s artificial intelligence ambitions, which require advanced chips at the cutting edge. The combined effect of the various US export bans is that the Asian country cannot buy advanced AI chips from the likes of Nvidia or AMD, design them themselves using Arm intellectual property and have them manufactured by TSMC, or buy the manufacturing tools to make them in China.
“However, in the long term this will both accelerate China’s drive to semiconductor self-sufficiency and also cause a technological divergence between the West and China in terms of standards, chip architectures and manufacturing technologies which will impact global collaboration for decades to come, even if the current Sino American tension were to ease.”