Chinese chip makers slow down processors to avoid US sanctions

Alibaba and startup Biren Technology are upgrading their most advanced chip designs to slow down processing speeds and avoid U.S. sanctions aimed at choking off China’s computing power.

Alibaba, Biren and other Chinese design houses have spent years and millions of dollars blueprinting advanced processors to power the country’s next-generation supercomputers, artificial intelligence algorithms and data centers. They are manufactured offshore by the world’s largest contract chip manufacturer, Taiwan Semiconductor Manufacturing.

But sanctions announced by Washington last month limiting the processing power of any semiconductor shipped to China without a license have undermined their ambitions.

Both Alibaba and Biren had already done costly testing of their latest chips at TSMC when Washington unveiled the controls. According to six people briefed on the situation, the rules have forced companies to halt further production and make changes to their designs.

This is another blow to Alibaba, the technology group founded by billionaire Jack Ma. Its shares have lost 80 percent of their value since Beijing canceled an initial public offering of sister group Ant two years ago. The group’s new chip was to be its first GPU and was close to being unveiled, according to three people familiar with the matter.

US export controls extend to third-country chip makers because almost all semiconductor factories use US components or software, meaning the rules could amount to an embargo on all high-performance processors entering China. Earlier, Washington restricted such imports from California-based chipmakers Nvidia and AMD.

Meanwhile, China’s own chip factories are arguably decades away from producing cutting-edge chips like those designed by Alibaba and Biren.

Analysts say that Washington’s sanctions, part of which are restrictions on high-performance processors, are aimed at forcibly slowing down the development of China’s technology sector.

“Trying to freeze the country in place for technology level hardware is a big deal,” said Paul Triolo, head of technical policy at consulting group ASG. “That’s what the US is trying to do by limiting sales and shutting down the manufacturing roadmap to get to these advanced hardware levels.”

Triolo said high-performance processors are the building blocks for supercomputing and artificial intelligence research that underpins everything from autonomous driving to drug development. “If Commerce doesn’t issue licenses, China has a real problem,”he said.

However, the US Department of Commerce is unlikely to issue such licenses, said Kevin Wolf, an export control expert at Akin Gump. “This part of the rule states that such applications will be ‘presumably rejected’,” he said.