China vs. USA – The Long arm of the USA

The first non-US company falls in.

• The USA’s mission to isolate China technologically has taken a further turn with Arm deciding that some of its chips wont get licences which will add weight on Japan and The Netherlands with regards to adding restrictions of their own.
• Arm has determined that the latest version of Neoverse will violate the new regulations announced on October 7^th meaning that sales to China of this design will be halted.
• Neoverse is Arm’s family of chip designs for infrastructure such as cloud servers and it is in this capacity that Alibaba and other cloud providers in China will no longer be able to use it.
• RFM research (see here) indicates that Arm has determined that it falls foul of the new regulations on the basis of some of the technology being developed in the USA as well as having an internal data transfer speed of greater than 600 Gbps.
• There is a reasonably straightforward fix for this which both Nvidia and AMD have used which is to create a version with the transfer speed limited at 600 Gbps, and I suspect that Arm may pursue this route in time.
• This is the first instance of a non-US company moving to comply with the new US regulations and I suspect may help the USA in its negotiations with Japan and the Netherlands.
• Restrictions on leading edge are easier to successfully enforce unilaterally, but the latest restrictions also include semiconductors below 18nm for memory and 16nm for logic.
• These nodes can be manufactured using deep ultraviolet lithography which is something that Japanese companies can supply.
• Hence to successfully enforce the ban at 18nm and 16nm, the USA ideally needs to have cooperation from Japan and The Netherlands.
• The nuclear option is for the USA to use the Foreign Direct Product Rule which blocks the shipment of any product that has been made using USA technology.
• I am pretty sure that somewhere in deep ultraviolet equipment there will be a piece of USA technology being used that will prove time-consuming and expensive to design out.
• It may not be worth Japan’s while in working around it as it looks like most of the restricted nodes will end up being moved out of China anyway.
• Hence, I suspect that the USA, Japan and The Netherlands will come to an agreement that will ensure that China is unable to source the equipment it needs to manufacture the restricted technologies.
• This will further incentivise China to set its own standards in other technologies to avoid a repeat of current events.
• This will ensure that global technology will fragment creating a significant negative network effect as the internet splits into two incompatible pieces.
• This is why growth in revenues generated by global technology may have already peaked and why the very long-term outlook could be much lower than many would like us to believe.
• This is the digital iron curtain that RFM and Alavan Independent see descending and the latest events in the geopolitical arena make this outcome increasingly likely.
• It seems like a wall is being built after all.