China’s Cyberspace Administration (CAC) has summoned Nvidia over alleged security vulnerabilities in its H20 chips. The CAC said that the chips have serious security issues with specific concerns over tracking and positioning and remote shutdown technologies. This development poses a big hurdle for Nvidia just as H20 sales were set to resume after the US reversed a ban that was first imposed in April.
According to CNBC, Nvidia had already taken a $4.5 billion writedown on the unsold H20 inventory in May and said sales in its last financial quarter would have been $2.5 billion if export curbs could have been avoided.
The CAC is concerned about the chips because of calls from US lawmakers for mandatory tracking features on advanced chip exports. For example, the proposed US Chip Security Act from Senator Tom Cotton and others would require location reporting and remote modification capabilities. If these backdoors have already been baked in, or get added in the future, China would view them as a threat to national security and data privacy.
US lawmakers argue that these tracking capabilities are needed to prevent chip smuggling to ensure compliance with export controls which also apply to China. Given its actions, the CAC has reason to believe that the tracking technology is already present.
Nvidia CEO Jensen Huang recently visited the Chinese capital, Beijing, to signal the company’s commitment to the Chinese market and announced the resumption of sales of the H20. It is believed that Nvidia placed new orders for 300,000 H20 chipsets with TSMC to meet the anticipated demand.
Given the CAC’s decision, it could mess up Nvidia’s plans and force it to consider new ways to navigate US export policies and retain its lucrative China market share.
The US is keen to hamper China"s AI efforts so that it maintains a lead in the AI race. By limiting access to powerful hardware, it forces China to make more efficient models, or develop powerful hardware itself, slowing down its progress.