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China/US blacklist: chip designer Cambricon becomes tech war casualty

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Running a Chinese tech company is an increasingly tricky proposition. The US has placed another 36 Chinese groups on its trade blacklist, limiting access to advanced chips and technology. Of the group, Cambricon, China’s answer to Nvidia, is one to watch. 

The so-called entity list effectively limits the sale of critical US technologies to companies including China’s largest flash memory chipmaker, Yangtze Memory Technologies Corp, and its Japanese subsidiary. Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies and Shanghai Micro Electronics Equipment Group are also on the list. Together, these four account for most of China’s chip industry. 

However, the biggest impact on China’s technological future could come from a far smaller and less well-known company. Local chip designer Cambricon Technologies develops artificial intelligence processor chips for companies spanning finance, energy and manufacturing.

The chips that Cambricon designs are crucial for a wide range of technologies from self-driving cars to cloud services. US chip export bans have already cut off supply for Nvidia’s flagship AI chips, which once accounted for more than 95 per cent of the local Chinese market. That leaves Cambricon with a large gap to fill.

The blacklist stymies its chance to take advantage of the situation. Cambricon will not be able to use advanced intellectual property from UK chip designer Arm. Arm has already determined that the US and UK will not approve licences to export advanced technology to China. Production of advanced chips will also not be possible without access to Taiwan’s TSMC and South Korea’s Samsung, neither of which are likely to ignore US sanctions.

Cambricon was considered the most promising start-up in the local semiconductor industry when it listed in 2020. But shares are down three-quarters since its debut. Operating margins remain negative, despite its strong record of developing chips for local tech groups such as Alibaba and being used in more than 100mn phones and servers. The US ban means there is no prospect of share price recovery soon.

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