Nvidia and AMD to Give US Cut of Revenue to Sell Chips to China
Massive chip makers Nvidia and Advanced Micro Devices (AMD) have reportedly signed an agreement with the United States federal government to give the government 15% of their revenue from selling advanced computer chips to China.
This exceptionally unusual deal reported by Reuters and others is unprecedented and comes after American chipmakers — Nvidia and AMD are both headquartered in Santa Clara, California — were previously barred from selling certain chips to Chinese companies altogether.
The United States federal government under Donald Trump has become increasingly involved with how companies run their businesses, with numerous tech giants, like Apple, making new deals with the government to boost their domestic interests.
The news concerning Nvidia and AMD also comes days after Trump publicly demanded that Intel’s new CEO, Lip-Bu Tan, resign because of his alleged ties to China. Bloomberg reported earlier today that Tan is expected to meet with Trump sometime today to discuss the situation.
Nvidia and AMD’s decision to enter a revenue-sharing arrangement with the U.S. federal government to secure their ability to export products is not only highly unusual but will likely set a precedent that other companies aiming to do business in China will need to abide by.
Trump, who claims he originally wanted 20% from Nvidia, described the arrangement as “a little deal” during a press briefing earlier today.
The stock market responded positively to the news, as this arrangement will enable Nvidia and AMD to sell more products. Nvidia, which became the world’s first publicly traded $4 trillion company in early July, currently has a $4.48 trillion market cap following today’s news. China is a massive market for Nvidia and AMD, so it is of little surprise that the financial markets are keen for both companies to restart chip sales to the Asian nation.
“This seeming quid pro quo is unprecedented from an export control perspective. The arrangement risks invalidating the national security rationale for U.S. export controls,” Jacob Feldgoise, research at the Washington D.C.-based Center for Security and Emerging Technology, told Bloomberg of the new deal.
Restrictions on American companies exporting chips to China were predicated on the notion that these sales embodied national security concerns. Apparently, that’s a fear that can be addressed by sharing money with the federal government. The New York Times claims this new arrangement could see the U.S. government receive up to $2 billion in additional revenue.
Feldgoise added that this revenue-sharing agreement “will likely undermine the U.S.’ position when negotiating with allies to implement complementary controls. Allies may not believe U.S. policymakers if they are willing to trade away those same national security concerns for economic concessions — either from U.S. companies or foreign governments.”
Image credits: Header photo licensed via Depositphotos.
