Nvidia 'Facing $1bn Fine' as China Opens Anti-Monopoly Probe

Nvidia could face a $1 billion fine in China after Beijing said on Monday it would open an anti-monopoly investigation into the American chipmaker.

The State Administration for Market Regulation — the agency that announced the probe — said Nvidia was also suspected of violating commitments it made to China during its acquisition of Israeli chip designer Mellanox Technologies in 2020.

The agency did not specify how Nvidia might have violated rules in either of those cases, but on Tuesday, commentary on Chinese state-backed media signalled the move was a response to Washington’s ongoing clampdown on exports of advanced artificial intelligence chips to China.

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Referring to the Mellanox takeover, state media China Daily said in an editorial that Beijing regulators had only approved the deal after Nvidia extended certain guarantees on chip deliveries to China.

“Yet, Nvidia has stopped supplying a number of GPU accelerator products to China in recent years on the grounds of the US government’s export controls,” it said.

The editorial also said the probe should not be seen as “a tactical move in the Sino-US trade war”. Instead it is an attempt “to create a level playing field for foreign businesses,” the Beijing mouthpiece said.

If Nvidia is found to have violated Beijing’s market rules, it could face fines of up to $1.03 billion, the South China Morning Daily reported on Tuesday, citing Chinese media.

As per China’s antitrust law, companies can face fines between 1 to 10% of their annual sales from the previous year, it noted. A $1.03 billion would be 10% of Nvidia’s sales in China in financial year 2024.

“If the violation is particularly egregious… it could face maximum penalties – multiplied by 2 to 5 times – resulting in a fine of $2.89 billion,” Liu Xu, a Tsinghua University research fellow, told the SCMP.

The last time China launched an anti-monopoly probe into a high-profile foreign technology firm was in 2013, when it investigated Qualcomm’s local subsidiary for overcharging and abusing its market position in wireless communication standards.

Qualcomm later agreed to pay a fine of $975 million, which was the largest China had ever handed out to a company at the time.

What was the Mellanox deal?

In 2020, Nvidia sought antitrust approval from China for its acquisition of Mellanox, and managed to get a conditional approval from Beijing, to the relief of investors who feared Sino-US trade friction could complicate the process.

The conditions set by Beijing required Nvidia and the merged entity to supply GPU accelerators to the Chinese market on “fair, reasonable, and non-discriminatory” terms.

The companies were also required to provide customers and distributors the opportunity to purchase up to one year’s inventory of Nvidia GPU accelerators and Mellanox networking equipment.

The conditions also prohibited forced product bundling, unreasonable trading terms, purchase restrictions and discriminatory treatment of customers who buy products separately.

The merger “strengthened Nvidia’s market dominance,” China Daily said in its editorial.

And by cutting supplies of GPU accelerator products to China, Nvidia “has infringed upon the legitimate rights and interests of relevant Chinese enterprises,” it said.

How does this connect to US-China chip wars?

Responding to the investigation, a Nvidia spokesperson said the company worked hard to “provide the best products we can in every region and honour our commitments everywhere we do business.”

“We are happy to answer any questions regulators may have about our business,” he added.

Nvidia’s shares, meanwhile, closed 2.5% lower on Monday and edged down further in pre-market trade on Tuesday.

The anti-monopoly probe comes just two weeks after Beijing said it would support Nvidia’s efforts ’to take root’ in the country.

It is likely part of a rare coordinated response to Washington’s latest round of restrictions on exports of artificial intelligence chips to China.

In the days since the new curbs were announced, four key Chinese industry bodies have called on domestic firms to buy locally made chips, saying buying US chips was “no longer safe”.

Beijing has also announced a blanket ban on exports of three critical minerals — gallium, germanium and antimony — to the US.

How will this affect Nvidia?

Prior to Washington’s chip bans, that began in 2022, Nvidia commanded a more than 90% share of China’s AI chip market. It has since been unable to sell some of its most advanced chips such as the A100 and H100 in the country.

China’s share in Nvidia’s revenues has slipped, down to around 17% in the year to the end of January. Its share was 26% before US chip curbs took effect two years earlier.

Nvidia now also faces increasing competition from domestic rivals, chief among which is Huawei.

But Nvidia chief Jensen Huang has said, as recently as last month, that the chipmaker is committed to maintaining its presence in China. Nvidia also said in July it was in the process of tweaking its new Blackwell AI chips to create a version it could sell to China.

Even so, China’s antitrust probe is unlikely to have much of an impact on the company, particularly in the near-term, because most of its most advanced chips are already restricted from being sold into China, TECHnalysis Research chief analyst Bob O’Donnell told Reuters.

“It’s clear that the Chinese government is trying to react against recent restrictions from the US, but their ability to impact the US semiconductor industry continues to decrease over time,” O’Donnell said.

Vishakha Saxena, with Reuters

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]