The Six Five team discusses U.S. China Chip Controls and NVIDIA.
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Transcript:
Pat Moorhead: US China chip controls. Dan, you and I were both burning up the video news services. I was on CNBC twice talking about this. I think you were on multiple ones. TD Ameritrade-
Daniel Newman: CNBC, TD Ameritrade. Yeah, yeah.
Pat Moorhead: I did CNBC within an hour of each other.
Daniel Newman: Yeah, you were on the one show and I was on the next show.
Pat Moorhead: How about that?
Daniel Newman: One of these times we got to get them to put us on together. It really does feel like the Six Five join CNBC, John Fort make it happen. You know what I mean?
Pat Moorhead: On John. You can do this.
Daniel Newman: Come on John.
Pat Moorhead: You can do this, dude. No, but hey, let me do the rundown here. So there was an article written, I think by the Wall Street Journal that said the Biden administration was going to provide higher levels of scrutiny. They’re already putting higher levels of scrutiny on companies that do AI training and inference. And so people, as you would expect, brought up Nvidia and talked through that. So what we’re looking at, and I just want to put this in context here. This is really a 20 year conflict, okay? 20 years ago, China pretty much banned IBM and Cisco and even Microsoft from critical infrastructure. And they still ban Google, Twitter, Facebook, Instagram, and I’m pretty sure WhatsApp. So it’s really an asymmetrical relationship where you had China banning all these companies and then US banned Huawei and ZTE for military reasons.
And then the Biden administration this year banned 59 companies who sell to the US but also are a key supplier to the Chinese military. So an interesting conflict going on, but nobody should be confused that it’s new, it’s not it. It’s actually, like I said, it’s 20 years old if you want to really put it in context. So I think we’re kind of in a standoff and what that is doing is that’s it impact Nvidia a little bit, but not a lot. NVIDIA’s CFO came on and basically said, “Hey, not really a big hit here short term.” Should make a really good point, which I do agree with is I’m hoping we are balancing the military element or the public safety, US security. But the fact that China is going to, if we ban certain semiconductors from China, they’re going to go and try to develop their own.
Now China has been trying to do this for a long time. In fact, I licensed China when I was at AMD with x86 technology. Now it was 46 technology, but still you could take that and duce, they did nothing with it. And that’s because the US companies like AMD and Intel and Arm were just moving way too quickly.
So here we are in this standoff, but China will continue to invest. I can see them figuring out the designs. The one thing that plays into this is can China get leading edge? They can’t get leading edge right now from the highest performance chip making equipment company. So China might be able to design it, but can they actually make it? Can China do generative AI? Yeah, they can. But probably at a 10x less efficient way of doing it, they have to probably throw 10x the hardware at it to be able to do what US chip makers can do. And then there’s the software. But I think that China could create its own software ecosystem if it wanted to. If nothing else. It has millions more developers than in the western worlds so I left you a lot of oxygen in the room, Dan. Go for it.
Daniel Newman: I like that you self proclaim whether there’s oxygen in the room. I think you did a pretty good job of covering a lot of it. But fortunately the fun part here is this is very subjective, it’s very qualitative. This is not necessarily a spectrum in light and weight. There’s a lot of ways we can all sort of chew on this. And I’m kidding buddy. You’re always the host with the most, I would argue that you’re the world’s best moderator.
Pat Moorhead: Well, no, I think that’s already taken by Jason.
Daniel Newman: I think he trademarked it. But I think I’m proclaiming you are the best. He proclaims it about himself. So just think about, remember that Jason when you’re listening to the Six Five pod. In all serious though, we did have quite a media circus. Pat, this stuff always fuels a lot of interest. This is what the world wants to hear about. It wants conflict. And there is conflict here. And this is not driven by AI, but it’s been reinvigorated. It’s always triggered by something. It was triggered by supply chain, then it was triggered by the CHIPS Act and the desire to start to build a more resilient supply chain around the world. And then in this case, with the power that we know AI is going to have over industry. So there’s two basic arms races. There’s the legitimate military industrial complex of arms race to be the most powerful and have the most capable national defense ecosystem in the world, which the US and China both seek to have.
And then the second one is there is the power of money and industry and the United States and China are boxing in any given day for the number one, number two economies in the world. China has shown over the past decades that it can quickly close the gap on the US’s global economic standing. But the US has long enjoyed some technological advantages that come from largely the Silicon Valley of what we’ve created, what we’ve built. And yes, we have created some risk through outsourcing a lot of the manufacturing to Taiwan, which is a territory of debate, let’s just put it that way. The way we in the west see Taiwan and the way the east sees Taiwan is not the same. And that’s the thing about the myopia that people have in this world is all of us here in the US and even some of the chip makers and Pat, you and I have talked to a lot of executives at times, it’s almost with hubris that they kind of think that everything’s kosher and Taiwan is going to be fine.
And then there’s this irony in the east where it’s kind of almost like they’re just sort of waiting, lurking, watching and you can’t help but just be nervous that the decision could come at any time to reclaim what the East believes is it’s own. And of course almost all the leading edge is produced there. So that’s creating a lot of friction, a lot of tension that the US and both China are fighting for. So you look at the Micron situation and what an interesting decision for China to go after Micron. And here’s my thesis and Pat, they’ve done nothing to actually validate the claim. They just kind of block made a decision. And I feel like they almost picked a company that was in an area that China has the most capability to do on its own. Like “Yeah, we’ll go after the memory folks. Because we can do that.” And I would argue Micron has some really great innovation that China and its companies like SK that they have relationships with that they continue to get volume from yield can make a lot-
Pat Moorhead: And they have their own and-
Daniel Newman: And they have their own. And they have their own. Yeah. But having said that, going after an Nvidia is too risky because China can’t do anything right now to compete with the US and an AI without having access to Nvidia chips. Now they don’t have access to the 800 or the most advanced chips, but they still want to be able to get the legacy stuff because the legacy stuff that they are still able to get beyond is still better than anything they can manufacture there today.
Pat Moorhead: That is true.
Daniel Newman: So they do not want to pick a fight where they cannot compete. So they randomly are sort of saying “Here, let’s do this micro-aggression and go after a company that’s kind of more nascent to us where we can get what we need from other channels more easily.” And of course, don’t be dumb society to think that China doesn’t have ways to work around chip controls. They’re still finding ways to get the most advanced technology into the country. It’s happened for generations. This is not the first time. I’m not proclaiming Pat, you look like you want to say something about that.
Pat Moorhead: No, I’m just agreeing. I’m agreeing with you and I’m glad you brought that up. People have been backdooring band stuff into China forever. Now when they get caught it’s super ugly. We saw what happened when Huawei was accused of funneling their technology to Iran. They literally jailed the head of Huawei, the daughter of one of the rotating CEOs for two years.
Daniel Newman: Yeah, this isn’t something to take lightly, I’m just pointing out it’s a very complex subjective qualitative debate that needs to be had. These are additional controls. And let’s just be candid, the most powerful country in the world for the future of the semiconductor industry is the Netherlands. So you can go smoke your weed and drink your coffee and you can wait for the Dutch to basically make the final decision on who the most-
Pat Moorhead: Hold on man. Tell us all why that’s the case. I know why it’s the case, but tell everybody.
Daniel Newman: Because ASML holds the keys. The only manufacturer that can enable the EUV to be able to go to these smaller and smaller process nodes is ASML. We’ve actually weaponized the Dutch and they’re the most powerful country in the world. And right now they’re on our side. But they-
Pat Moorhead: I think China will just-
Daniel Newman: They’re more powerful than Joe Manchin. They’re literally more powerful right now than Joe Manchin. They can literally decide the winners and the losers. I don’t think anytime soon they would be defecting to support the Chinese. And as long as the demand stays this high in the US and in Taiwan, everyone from Nvidia to Micron will be fine because the demand locally will augment and offset and allow for growth even if they’re losing 20 or 25%.
Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
