China just hit NVIDIA with an antitrust probe amid escalating tensions with the US over its chip and tech sanctions! Here is what you need to know…

China hits NVIDIA with antitrust probe amid escalating tensions!

On Monday, 9 December 2024, China launched an investigation into NVIDIA Corp over alleged violations of its anti-monopoly laws. The probe, announced by the State Administration for Market Regulation (SAMR), comes amid growing tensions between the US and China over the semiconductor industry.

The SAMR statement did not specify the exact violations but suggested that NVIDIA may have breached terms over its 2020 acquisition of Israeli chipmaker Mellanox Technologies. The deal was approved by China with several conditions, including commitments to fair pricing and non-discriminatory treatment of customers. NVIDIA’s failure to meet these terms could be the focus of the investigation.

The investigation is viewed as retaliation for the US’s escalating actions against China’s semiconductor sector. Last week, the US imposed its third round of export restrictions in three years, targeting 140 Chinese companies, including chip equipment manufacturers. These curbs have severely limited China’s access to advanced semiconductor technology, including NVIDIA’s high-performance AI and gaming chips.

NVIDIA did not immediately comment on the probe, and its shares fell 2.6% following the news. However, industry analysts downplay the potential impact on the company in the short term. Bob O’Donnell, chief analyst at TECHnalysis Research, noted that most of NVIDIA’s advanced chips are already restricted from export to China. As a result, the immediate effects on the company’s operations are likely minimal.

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NVIDIA antitrust probe likely retaliation for US export curbs

This investigation follows the US’s aggressive stance on limiting China’s access to critical semiconductor technology. In response to Washington’s recent restrictions, Beijing has banned exports of crucial minerals such as gallium, germanium, and antimony to the US. These materials are essential for producing advanced chips and have a direct impact on the US’s semiconductor industry.

Additionally, Chinese industry groups have warned local companies to avoid purchasing US-made chips, claiming they are no longer “safe” due to the ongoing trade tensions. These coordinated responses indicate that China is determined to push back against the US’s efforts to curb its semiconductor capabilities.

Before these export restrictions, NVIDIA dominated China’s AI chip market with a market share exceeding 90%. However, since the sanctions were imposed, the company has seen its revenue from China decline. In the 2023 fiscal year, China accounted for 17% of Nvidia’s revenue, down from 26% just two years earlier.

Despite these challenges, NVIDIA remains a key player in the market. In response to US sanctions, NVIDIA has created modified versions of its high-performance chips specifically designed to comply with export controls. These changes, however, have not been enough to stem the growing competition from domestic Chinese firms, particularly HUAWEI, which has ramped up efforts to develop its own AI chips.

In addition, the China Academy of Information and Communications Technology (CAICT) just advised Chinese data centres to continue using NVIDIA chips for AI applications.

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This is not the first time China has used antitrust probes to target foreign companies like NVIDIA. In 2013, China investigated Qualcomm for alleged overcharging and abuse of its market dominance in wireless communication technologies. Qualcomm eventually settled, agreeing to pay a record fine of US$975 million at the time.

The timing of this investigation suggests that China is increasingly willing to use regulatory tools like antitrust probes to pressure foreign tech firms amidst ongoing trade disputes with the US. The outcome of the investigation could have significant implications for NVIDIA’s operations in China, where it has long been a dominant player in the AI and gaming chip markets.

As tensions between the US and China over semiconductor technology intensify, the relationship between the two global tech giants is likely to remain fraught. The outcome of NVIDIA’s antitrust investigation will be closely watched, as it may signal China’s willingness to ramp up efforts to protect its own growing chip industry. Meanwhile, NVIDIA continues to navigate the complexities of the US-China trade war, seeking ways to adapt to the shifting landscape of global semiconductor supply chains.

In the meantime, China’s push for self-reliance in semiconductor production remains strong, with local firms like HUAWEI stepping up their efforts to build homegrown alternatives to foreign chipmakers like NVIDIA. However, as the market for advanced AI chips grows more competitive, China may find it increasingly difficult to close the technology gap with leading firms in the US.

The geopolitical standoff over chip technology is far from over, and this investigation is only the latest chapter in a long-running saga of trade and technological rivalry between the world’s two largest economies.

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