Daily: AI Diffusion Rule scrapped; New chip tracking proposals; SMIC profit jumps but misses
10 min read.
Housekeeping note: Apologies for being away these past two weeks. I was on medical leave but am much better now. Newsletters after a break tend to be a bit rough and long, so bear with me as I do my best to catch up.
I’ve focused on just the major hits of the past two weeks, so recommend reading today’s newsletter in full if you can.
Highlights
AI Diffusion Rule scrapped. The Trump admin revoked the “AI Diffusion Rule,” which Biden announced in the last weeks of his administration. The Rule split the world in three tiers, each with varied levels of access to American AI chips. The top tier with the most access was restricted to just 18 countries, and a lot of American allies and partners were in the semi-restricted second tier. Those countries, especially the UAE, were pretty upset about it, as were American AI chip companies, who want to sell to everyone they can.
However, this does not mean that countries/companies are off the hook. Trump will likely institute some other kind of chip restriction, as he has already done, in banning American companies from selling H20s and equivalent chips to China.
New chip tracking proposals. Even as Trump overhauled the AI Diffusion Rule this past week, U.S. lawmakers have been working on legislation to effectively track chips to ensure that they do not violate export controls. This effort has bipartisan support. Nvidia was up 3% and the Philadelphia Semiconductor Stock Index up 4% after AI Diffusion Rule news, but I think the optimism is premature and will be short-lived.
SMIC profit jumps but misses. SMIC’s Q1 net income more than doubled year-on-year, but still missed investor expectations. SMIC stock slumped ~9% from the news. The jump in profit likely came from domestic stimulus measures and revenue being pulled forward ahead of the tariff uncertainty. The short-term future for SMIC seems a bit bleak, unless China can 1) boost domestic consumption, 2) achieve breakthroughs in EUV and chipmaking tools, 3) U.S.-China relationship smooths out.
Thanks for reading.
1. Policy and Geopolitics
1.1
WSJ (05/07): U.S. to Overhaul Curbs on AI Chip Exports After Industry Backlash
The Trump administration plans to overhaul controversial regulations that would limit how many artificial-intelligence chips individual countries can buy, giving companies such as Nvidia a potential reprieve from tight export controls.
The decision is at least a temporary boon for tech titans that have fought the rules and been buffeted by a wave of export restrictions in recent years. Seamless chip sales to countries friendly with the U.S. are critical to their businesses but would be jeopardized by the new regulations, they have said.
Many industry executives are still bracing for tight export controls that take a different form from the Biden team’s proposal. The Trump administration recently cracked down on Nvidia selling a specialized AI chip to China, prompting the company to record a $5.5 billion charge related to the change.
The rule, commonly known as AI diffusion, had been set to go into effect May 15. Focus will now turn to the Trump team’s plan to remake it, which could take a couple of months, people familiar with the matter said.
1.2
Reuters (05/09): Exclusive: Nvidia modifies H20 chip for China to overcome US export controls, sources say
Nvidia plans to release a downgraded version of its H20 artificial intelligence chip for China in the next two months, following U.S. export restrictions on the original model, three sources familiar with the matter told Reuters.
The U.S. chipmaker has notified major Chinese customers, including leading cloud computing providers, that it aims to release the modified H20 chip in July, two of the sources said.
These specifications will result in significant downgrades from the original H20, including substantially reduced memory capacity, one of the sources said.
1.3
Reuters (05/06): Exclusive: US lawmaker targets Nvidia chip smuggling to China with new bill
A U.S. lawmaker plans to introduce legislation in coming weeks to verify the location of artificial-intelligence chips like those made by Nvidia after they are sold.
The effort to keep tabs on the chips, which drew bipartisan support from U.S. lawmakers, aims to address reports of widespread smuggling of Nvidia's chips into China in violation of U.S. export control laws.
U.S. Representative Bill Foster, a Democrat from Illinois who once worked as a particle physicist, said the technology to track chips after they are sold is readily available, with much of it already built in to Nvidia's chips. Independent technical experts interviewed by Reuters agreed.
Foster, who successfully designed multiple computer chips during his scientific career, plans to introduce in coming weeks a bill that would direct U.S. regulators to come up with rules in two key areas: Tracking chips to ensure they are where they are authorized to be under export control licenses, and preventing those chips from booting up if they are not properly licensed under export controls.
1.4
Bloomberg (05/02): Apple to Source Billions of US-Made Chips in Supply Chain Shift
Apple Inc. plans to source more than 19 billion chips from the US this year, part of a global supply chain shift to gradually lessen its reliance on China and elevate India for iPhone production.
Chief Executive Officer Tim Cook talked about leaning more heavily on Taiwan Semiconductor Manufacturing Co., which is expanding its Arizona operations to half a dozen plants. He also affirmed expectations that Apple will in future make the vast majority of its US-bound iPhones in India — reducing output from China as the Donald Trump administration threatens to slap punitive tariffs on its Asian rival.
1.5
WSJ (05/01): Trade War Exposes China’s Dependence on U.S. for Auto Chips
China still needs certain American chips that are essential for cars and other industrial goods.
The vulnerability was revealed when Beijing in late April exempted eight categories of U.S.-made chips from the 125% tariffs it imposed on American goods in the trade war with President Trump. The decision followed lobbying by Chinese automakers, said people in the industry.
1.6
Bloomberg (05/02): Singapore Steps Up Fraud Probe Involving Nvidia’s AI Chips
Singaporean prosecutors secured eight more weeks to deepen a probe and potentially bring more charges against three men accused of fraud in shipping servers suspected of containing Nvidia Corp. chips banned from China.
1.7
Reuters (05/01): Exclusive: Adani pauses talks with Israel's Tower for $10 billion India chip foray, sources say
Indian billionaire Gautam Adani's group has paused discussions with Israel's Tower Semiconductor for a $10 billion chip project as it did not make strategic and commercial sense for the group, two people familiar with the matter told Reuters.
India's western Maharashtra state in September announced approval for Adani and Tower to set up a facility which would produce 80,000 wafers per month and create 5,000 jobs, helping Prime Minister Narendra Modi's ambition of making India a chipmaking hub.
2. Economy, Finance, and Business
2.1
WSJ (05/08): SMIC’s Quarterly Profit Jumps on Robust Chip Demand
Semiconductor Manufacturing International Corp., China’s largest chip maker, reported a sharp rise in quarterly net profit, driven by Beijing’s stimulus measures and front-loading activities amid geopolitical tensions.
First-quarter net profit more than doubled from a year earlier to $188.0 million. That still missed a FactSet consensus estimate of $226 million.
In February, management noted that customers were bringing forward orders for 2025 due to concerns about geopolitical uncertainties. At the same time, Beijing’s consumer-electronics subsidies have prompted clients to build up chip inventory to capture greater market share.
2.2
FT (04/30): Huawei delivers advanced AI chip ‘cluster’ to Chinese clients cut off from Nvidia
Huawei has started the delivery of its advanced artificial intelligence chip “cluster” to Chinese clients who are increasing orders after being cut off from Nvidia’s semiconductors because of Washington’s export restrictions.
The Shenzhen-based tech conglomerate has sold more than 10 sets of CloudMatrix 384, which links a large sum of chips together, according to two people with knowledge of the matter.
CloudMatrix 384 uses Huawei’s Ascend 910C chips, which by themselves underperform Nvidia’s GB200 processors.
2.3
Bloomberg (05/07): AMD’s Rosy Sales Outlook Overshadowed by China Trade Concerns
Advanced Micro Devices Inc., Nvidia Corp.’s closest rival in artificial intelligence processors, offered an upbeat revenue outlook for the current period, even while warning that US export curbs will take a bite out of sales.
Second-quarter revenue is forecast to be about $7.4 billion, the company said Tuesday. That compares with an average analyst estimate of $7.23 billion. Chief Executive Officer Lisa Su also reiterated her projection that new chips debuting soon will help boost sales in the second half of the year.
The bullish forecast was overshadowed by a warning that US restrictions on sales to China will cost AMD $1.5 billion in revenue this year. The company had said last month that it expected to record an expense of about $800 million because of the new export rules.
2.4
FT (05/08): British chip designer Arm latest to be hit by Trump tariff uncertainty
British chip designer Arm warned that uncertainty around US tariff policies meant it was unable to give guidance for annual revenue, while customers such as Nvidia and Apple face shocks to global supply chains.
Reporting its fourth-quarter results on Wednesday, SoftBank-owned Arm issued a conservative sales outlook, forecasting revenue between $1bn and $1.1bn in the current quarter, at the lowest end of Wall Street predictions due to the timing of closing new licensing deals.
Its shares dropped as much as 9 per cent to $113 per share in after-hours trading.
2.5
Bloomberg (05/01): Qualcomm Falls After Tepid Forecast Renews Tariff Concerns
Shares of Qualcomm Inc., the biggest maker of chips that run smartphones, slid after the company gave a tepid revenue forecast, underscoring concerns that tariffs will hurt demand for its products.
Revenue in the period ending in June will be $9.9 billion to $10.7 billion, the company said Wednesday in a statement. The midpoint of that range was slightly below the average analyst estimate of $10.33 billion.
The outlook renewed fears that the market for smartphones will suffer from a looming trade war. Qualcomm is seen as highly vulnerable to the fallout from tariffs threatened by the US and China. The latter country is the biggest market for Qualcomm’s chips, and local phone makers are many of its top customers.
2.6
Reuters (05/06): GlobalFoundries sees Q2 revenue, profit above estimates on stable chip demand
GlobalFoundries forecast second-quarter revenue and profit slightly above Wall Street estimates on Tuesday, in a sign that the contract chipmaker was seeing stable demand despite choppy auto production and a soft smartphone market.
U.S. President Donald Trump's sweeping global tariff plans have threatened to upend the semiconductor industry. Tariffs on automakers - the third largest end-market for GlobalFoundries - have already kicked in, roiling the sector.
2.7
Bloomberg (05/07): Nvidia CEO Says China AI Market Is on Course to Hit $50 Billion
Nvidia Corp. Chief Executive Officer Jensen Huang said that the market for AI chips in China could reach $50 billion in the next couple of years, making it crucial for US companies to have access to the country.
Huang is lobbying against the tightening of restrictions on his company and peers that limit their access to China, the biggest market for semiconductors. The CEO has argued that the move will actually hurt US national security — something the rules are designed to protect.
2.8
TrendForce (05/08): Intel 18A Reportedly Lands Major Deal with Microsoft; Google and NVIDIA Said to Be in Talks
Microsoft has reportedly signed a large-scale foundry deal with Intel using the 18A process, while talks with Google are also said to be underway.
Chosun Biz notes that a Microsoft deal would mark a major milestone for Intel under CEO Lip-Bu Tan, boosting its standing against TSMC and Samsung in advanced foundry. Intel’s 18A process is currently in risk production and is expected to enter volume manufacturing later this year.
3. Technology
3.1
Bloomberg (05/09): Apple Is Developing Specialized Chips for Glasses, New Macs and AI Servers
Apple Inc.’s silicon design group is working on new chips that will serve as the brains for future devices, including its first smart glasses, more powerful Macs and artificial intelligence servers.
The company has made progress on the chip that it’s developing for smart glasses, according to people with knowledge of the matter. The move indicates that Apple is ramping up work on such a device, which would compete with the popular Ray-Ban spectacles offered by Meta Platforms Inc.
3.2
TrendForce (05/06): Xiaomi Reportedly Forms 1,000-Strong Team for In-house Chip amid U.S. Scrutiny, with May Launch Ahead
Another Chinese firm, Xiaomi, is rumored to have recruited Qin Muyun, a former Qualcomm senior director, and formed a 1000-employee team to develop its in-house “Xring” chipset, according to Wccftech.
Citing tipster Jukanlosreve, the report suggests that Xiaomi’s in-house chip “Xring” was first spotted as a working prototype in March, with a possible official launch in May. Notably, the team is operating independently to avoid U.S. scrutiny, especially after rumors emerged of a successful 3nm tape-out in 2024, raising fears of potential sanctions, the report adds.
3.3
Reuters (05/08): Cadence unveils new Nvidia-based supercomputer as it pushes into engineering, biotech software
Cadence Design Systems unveiled on Wednesday a new supercomputer based on chips from Nvidia that will speed up its software offerings for everything from designing chips to jets to new drugs.
Cadence supplies software that firms such as Apple use to design chips. But over the past several years, it has expanded to help customers such as Boom, a startup making supersonic jets, design their planes, or biotech startup Treeline Biosciences find new drug candidates by simulating molecules.
3.4
TrendForce (05/09): New-Generation of 3D X-DRAM Unveiled: Aiming to Boost DRAM Bit Density by 10x
On May 7, NEO Semiconductor announced a major breakthrough in its 3D X-DRAM technology series: the industry’s first 3D X-DRAM cell structures based on 1T1C and 3T0C architectures.
According to NEO Semiconductor, the new technology is designed to deliver unprecedented density, power efficiency, and scalability for the most demanding data-driven applications.
The newly introduced 1T1C and 3T0C designs are built on a 3D NAND-like architecture, with a proof-of-concept test chip expected to be launched in 2026. These designs combine DRAM performance with NAND manufacturability, targeting cost-effective, high-yield production with densities reaching up to 512 Gb—a 10x improvement over conventional DRAM.
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