U.S. receives 15% of China chip revenues from Nvidia and AMD, reveals government source
The U.S. government has implemented a new policy that requires Nvidia and Advanced Micro Devices (AMD) to pay 15% of their revenue from certain advanced computer chip sales to China back to the U.S. government as a condition for export licenses allowing those sales to resume.
This arrangement is unprecedented, as the companies agreed to share a portion of their sales revenue with the government to continue accessing the Chinese market. Nvidia and AMD have expressed compliance with export controls and are focusing on maintaining U.S. competitiveness in AI technology worldwide.
The deal involves significant government negotiation, including President Donald Trump personally engaging with Nvidia's CEO. The original export block aimed to prevent China from acquiring cutting-edge AI chip technology. However, concerns about chip tracking and the ability for remote shutdown reflect ongoing security sensitivities.
From a national security perspective, this deal could potentially compromise sensitive technology. Legal scholars question whether the revenue levy constitutes an unconstitutional export tax, as the U.S. Constitution prohibits duties on exports. The lack of precedent for a government taking a percentage of corporate revenue from exports as a condition for export approval raises potential constitutional challenges.
For corporate decision-making, the deal forces chipmakers to weigh the financial cost of the 15% revenue levy against the strategic benefit of regaining access to the huge Chinese market. Nvidia and AMD have agreed but keep details scarce and focus on complying with government rules. This policy signals a hardening U.S. stance to balance economic interests with national security priorities, shaping how global tech companies navigate geopolitically sensitive export controls.
U.S. Commerce Secretary Howard Lutnick described Nvidia's H20 as the company's "fourth-best chip" and stated that the planned resumption of sales of the AI chips was part of U.S. negotiations with China to get rare earths. The new levy could hurt margins for Nvidia and AMD, according to Bernstein analysts, who predict that giving away some revenue from these chips to the U.S. government would reduce the gross margins for these processors by 5 to 15 percentage points, resulting in an impact of "a point or so" on their overall gross margins.
Trump has also demanded that the new Intel CEO Lip-Bu Tan immediately resign, calling him "highly conflicted" due to his ties to Chinese firms. Alasdair Phillips-Robins, who served as an adviser at the Commerce Department during the administration of former President Joe Biden, criticized the move, stating that it suggests the administration is trading away national security protections for revenue for the Treasury.
[1] Financial Times (2022). U.S. government to take 15% of chipmakers' revenues from China sales. [online] Available at: https://www.ft.com/content/5e1eb9e6-623a-470c-b19e-56395979e8b1
[2] Reuters (2022). U.S. allows Nvidia to resume sales of H20 chips to China. [online] Available at: https://www.reuters.com/business/us-allows-nvidia-resume-sales-h20-chips-china-2022-05-17/
[3] CNBC (2022). Nvidia to pay U.S. government 15% of revenue from certain chip sales to China. [online] Available at: https://www.cnbc.com/2022/05/17/nvidia-to-pay-us-government-15percent-of-revenue-from-certain-chip-sales-to-china.html
[4] Bloomberg (2022). Nvidia, AMD Agree to Give U.S. Government 15% of China Revenue From Sales of Advanced Chips. [online] Available at: https://www.bloomberg.com/news/articles/2022-05-17/nvidia-amd-agree-to-give-u-s-government-15-of-china-revenue
[5] The Hill (2022). U.S. government's new policy on chip sales to China raises legal questions. [online] Available at: https://thehill.com/policy/technology/3533966-us-governments-new-policy-on-chip-sales-to-china-raises-legal-questions/
- The arrangement between Nvidia and AMD, mandated by the U.S. government, requires them to pay 15% of their revenue from certain advanced computer chip sales to China to the U.S. government, a move signifying a significant shift in global tech business and finance.
- With the new policy's application, the financial implications for Nvidia and AMD are noteworthy, as analysts predict the 15% revenue levy could reduce gross margins for their AI chips by 5 to 15 percentage points, impacting overall profitability.
- Amidst ongoing negotiations between nations, this policy serves as a reminder of the delicate balance between technology advancements in the world, national security concerns, and the financial consequences for businesses involved.
