US trade restrictions may affect China’s AI progress and Samsung’s revenue

Chinese tech companies are stocking up on Samsung high-bandwidth memory (HBM) chips in preparation for a US ban on the AI-capable semiconductor. The US government is considering adding HBM to its list of advanced AI chips that US manufacturers cannot sell to the Asian country.

Since the US first imposed chip restrictions in 2022, it has tightened the rules twice to close loopholes that allowed China to access these critical components. Market analysts have noted that the new potential ban could significantly impact China’s AI ambitions.

Potential ban could derail China’s AI ambitions

Reuters, citing sources familiar with the matter, reported that Chinese entities accounted for 30% of Samsung’s HBM revenue in the first half of 2024, with tech startups among the many customers. This stockpiling underscores China’s efforts to remain competitive despite trade restrictions.

HBM semiconductors are crucial components of advanced processors used for artificial intelligence computing. So, Chinese entities’ acquisition of these chips suggests that the country is willing to develop its AI-capable chips domestically despite trade bans.

China has made strides in this area. Huawei, for example, is developing its Ascend AI chips using Samsung’s HBM2E, and other companies like CXMT are producing HBM2 chips domestically. However, China’s HBM2 chips are three generations behind the latest HBM3E, highlighting a significant technological gap.

The restriction is also expected to affect Samsung. The tech giant is one of the three major companies producing HBM chips and the only one that gets a sizable portion of its chip revenue from China. A trade ban could end Samsung’s ability to capitalize on the strong demand in the Chinese market.

Chinese entities are still getting Nvidia chips

Meanwhile, Samsung will not be the first company affected by a trade ban. Several companies, most notably Nvidia, have lost billions in potential revenue due to bans on the exportation of chips to China.

The US argues that these measures are necessary to curb China’s AI development, which is seen as a security threat to the US and its allies. The US has also urged allied nations to implement similar semiconductor trade restrictions, with potential expansions to Malaysia, Israel, Singapore, and Taiwan.

Nevertheless, these restrictions have not entirely prevented the availability of AI chips in China. Instead, they have complicated access, creating a lucrative black market for these components. A recent New York Times report revealed that Chinese vendors are still managing to supply advanced Nvidia chips to domestic clients.

Notably, some companies have established new entities to circumvent the bans, while others are procuring chips from the black market through smuggling operations.