February 4, 2023

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Export controls affect China’s access to Arm’s leading chip designs

Alibaba, the Chinese tech giant, is unable to buy some of its most advanced chip designs after Arm found the US and UK would not approve licenses to export the technology to China.

The British company concluded that the US and UK would not approve the sale of its latest Neoverse V series because the performance was too high, according to people with knowledge of the sales process. The move affects Alibaba’s T-Head chip unit and other Chinese corporations.

It’s the first known time that Arm, which is owned by Japanese tech investor SoftBank, has decided it can’t export its cutting-edge designs to China.

Neoverse V falls under Wassenaar – a multilateral agreement involving 42 nations to prevent dual-use technology from being diverted for military use – but Arm would need US and UK export licenses to sell the technology.

The finding comes two months after the US imposed strict export controls to prevent China from receiving advanced chips or securing the technology and equipment to manufacture high-end semiconductors domestically.

Paul Triolo, a China and technology expert at consulting firm Albright Stonebridge Group, said the US Commerce Department’s Oct. 7 export controls also updated restrictions in a way that impacted the type of technology Arm produces.

“Key players in the semiconductor supply chain, including key IP players like Arm. . . must determine whether the features provided in their offerings meet or exceed the technical requirements of the new one [October 7] Trade regulations,” said Triolo.

While Arm could apply for licenses to sell the technology, given the US strategy of denying China technology that could have military applications, the chances of success are slim. When the US introduced the new measures in October, it stressed that there would be a presumption to deny licenses to export technology related to advanced chips to China.

Arm, which is headquartered in the UK but has significant offices in the US, is seen as vulnerable to the Biden administration’s use of export controls aimed at Beijing. Like tech companies around the world, Chinese companies rely heavily on Arm’s designs to build devices from smartphones to servers.

“We feel like the western world sees us as second-class citizens,” said an engineer at Alibaba’s T-Head. “They will not sell us good products even if we have money.”

The engineer said the US sanctions would create a two-tier system, noting that Neoverse V, released last year, was already being used by Amazon Web Services in the US for its cutting-edge cloud computing chip.

Arm’s intellectual property underlies most chips around the world and is used by most companies developing cutting-edge technologies.

Heightened tensions between China and the US have already prompted some Chinese chip companies to consider using an increasingly sophisticated open-source alternative to Arms designs called Risc-V.

Arm sells design architectures for processors—the electronic chips in a computer that perform logical functions—and for the “cores,” the units within the processor that receive and process information.

Over the past year, Arm has released several new core designs, including the Neoverse N2 and Neoverse V1 and V2, the latter of which are the most powerful cores to date, with designs characterized as having US origins.

Chinese companies have been prevented from purchasing Neoverse V2 and its previous generation V1 due to the US and UK export controls associated with the technologies listed under Wassenaar, according to two people briefed on the reasons for the move.

The multilateral export control agreement was signed in 1996 by more than 40 nations, including the UK, US and EU member states, to limit the sale of weapons and products that could have a dual military purpose.

Arm preemptively determined that it could not sell the intellectual property to China because it is a “US-origin” technology that falls under Wassenaar’s purview and would require an export license from Washington.

Arm said that as a global company, it is “committed to complying with all applicable export laws and regulations in the jurisdictions in which it operates.”

The UK government said it does not comment on individual license applications, but noted that it “is committed to supporting UK businesses and academia to work with China in a way that reflects UK values ​​and addresses national security concerns”.

The US did not respond to a request for comment. Alibaba declined to comment.

The US is trying to persuade key European and Asian chip allies, notably the Netherlands and Japan, to introduce strict export controls on chip equipment. The US needs help from its allies to complement the strict controls imposed on American semiconductor toolmakers by the Biden administration in October.

An executive at another chip design house in Shenzhen said that after the collapse of SoftBank’s $66 billion sale of Arm to Nvidia earlier this year, many Chinese chip engineers have regained confidence in using Arms designs without fear that they would later be excluded from the supply chain.

But he said the company realized “how naive” it was when told it couldn’t buy Neoverse V1 for high-end chips it was developing for cloud computing. The executive added that it had become clear that the decision was “not about money” but about export controls.

The move to N2 means the company will “take longer to reach our goals,” he added, because “V1’s overall performance will kill N2 on all fronts.”

A person close to Arm said the company is working with Alibaba and other Chinese partners to find solutions to help them meet their performance needs while complying with the latest export controls.