The US is ready to block China’s access to advanced chip design software

The U.S. is poised to implement new export restrictions on a specific type of software used to design semiconductors utilizing a next-generation technology that is vital for producing the most advanced AI chips, Protocol has learned, in an effort to target Chinese chipmakers.

A new rule

The Biden administration has been weighing a potential ban for months, but has elected to order the Commerce Department to issue a new rule that will effectively block the export of chip design software that’s required to make chips with an emerging technology called gate all around, according to a person familiar with the administration’s plans.

The new export restriction is set to be implemented in the coming weeks and is currently under review by the Office of Management and Budget, though the details of its implementation are still being hammered out. The administration’s goal is to block the sale of the design tools to Chinese companies pursuing AI applications, the person said.

The White House and the Commerce Department did not return multiple requests for comment.

William Reinsch, senior adviser and Scholl Chair in International Business at the Center for Strategic and International Studies, likened the U.S. approach to curtailing China’s access to key technologies to a marathon: To win, the U.S. has to either run faster or trip China.

To run faster

“What [China] is talking about is really kind of a direct challenge to American technology supremacy,” Reinsch said. “And I think Biden’s figured out the best way to meet that kind of challenge is to run faster. So that’s the more important part of the equation, but tripping them along the way is OK in international politics and economics.”

The software that will be affected by the new restrictions is an advanced form of a widely used technology called electronic design automation, or EDA, software, and it’s built by companies such as Cadence, Synopsys and Siemens. The software is a crucial design tool for engineers working on products that will eventually be sent to a chip manufacturer such as Intel, TSMC or Samsung. It also helps engineers ensure there aren’t any issues with the design before it’s made into chips.

Cadence and Siemens did not return requests for comment. A Synopsys spokesperson said that the company complies with all U.S. export controls.

Chip design software companies count China as a significant customer. Cadence derived 13% of its revenue from Chinese sources in its fiscal second quarter, according to a recent quarterly filing with the SEC. Synopsys disclosed that, also during its fiscal second quarter, 17% of its revenue came from China. However, it isn’t clear from those SEC filings how much of Cadence’s or Synopsys’ revenues comes from software that’s used for chips with gate-all-around technology, which is very new.

The administration’s plan to block specific EDA software used for those advanced designs expands existing controls on chip-related exports to China. The U.S. already restricts a range of technologies necessary to make chips with a different advanced technique called extreme ultraviolet lithography in a bid to prevent China from manufacturing the most advanced designs, although it’s not clear how effective such measures have been. Other existing restrictions include chip design software that is used for some aspects of manufacturing with EUV, but the new plan specifically targets the tools to build chips with gate-all-around tech.

Last week, equipment makers KLA and Lam Research disclosed that the Commerce Department had notified them that the U.S. was expanding its ban on selling tools to China that are capable of 14-nanometer manufacturing, a years-old process. Executives at the tool makers said that the restrictions targeted facilities that make logic chips.

The Commerce Department

The Commerce Department previously told Protocol that its Bureau of Industry and Security is updating its approach to China, and looking for ways to “maximize the effectiveness of our export controls. This includes ongoing and future work to tighten existing policies relating to the PRC’s production of advanced semiconductors, utilize a variety of legal, regulatory and, when appropriate, enforcement tools in BIS’s toolbox, and grow and strengthen our cooperation with allies and partners.”

The next-generation gate-all-around technology is critical for chipmakers who are in a constant battle with rivals to increase computing horsepower, while at the same time making chips that consume less energy. Gate all around is set to deliver substantial gains on both fronts and at the same time presents an opportunity for manufacturers such as TSMC or Intel to gain an advantage.

About E. J. McKay

E.J.McKay is a Shanghai-headquartered investment bank with a special focus on mergers & acquisitions. We are one of the most long standing independent investment banks in China, with core business of mergers & acquisitions and financing advisory.