Trump administration reportedly orders US chip software firms to halt China sales

The Trump administration, in its latest attempt to make it harder for China to develop advanced chips, has told US chip software companies to stop selling services to Chinese groups.

Several people familiar with the move said the US Department of Commerce instructed electronic design automation (EDA) groups such as Cadence, Synopsys, and Siemens EDA to stop supplying technology to China.

According to sources who spoke to the Financial Times, the Bureau of Industry and Security, an arm of the US Department of Commerce that oversees export controls, conveyed the instruction to the companies through letters. It is unclear if every US EDA company received a letter.

This move is seen as a critical step by the administration, which wants to gain a technological advantage over its geopolitical rival, to hinder China’s ability to develop state-of-the-art artificial intelligence chips. In April, Washington restricted Nvidia’s exports of specialized artificial intelligence chips to China.

There was no direct response from the chip software companies. Synopsys CEO Sassine Ghazi said in the second-quarter earnings report announced Wednesday: “We are following the news and speculation, but Synopsys has not received any notification from BIS. Therefore, our outlook, which we reiterated for the full year, reflects our current understanding of BIS export restrictions and our expectations of a year-over-year decline in [revenues in] China.”

A Department of Commerce official stated, “We are reviewing exports of strategic importance to China. In some cases, the [department] has suspended existing export licenses or imposed additional licensing requirements during the review period.”

This directive comes at a sensitive time as the US and China attempt to reach a trade agreement, following their agreement in Geneva to suspend mutual tariffs for 90 days.

The Financial Times reported last month that the Trump administration planned to blacklist a number of Chinese chip manufacturers, which would make it extremely difficult for US chip software companies to provide them with American technology. However, some officials argued for a postponement to avoid jeopardizing trade talks between the two countries.

Christopher Johnson, a former CIA China analyst, said the new export controls highlight “the inherent fragility of the tariff ceasefire reached in Geneva.” The risk of the ceasefire breaking down, even within the 90-day interim, is ever-present as both sides want to maintain and continue to demonstrate their leverage.

Johnson, head of the risk consultancy China Strategies Group, said China successfully used its dominance over rare earth elements to bring the US to the negotiating table in Geneva, and “Trump administration’s anti-China hawks are eager to show that their export control weapons are still effective.”

Although it represents a relatively small share of the semiconductor industry overall, EDA software plays a critical role in the supply chain by enabling chip designers and manufacturers to develop and test next-generation chips.

Synopsys, Cadence Design Systems, and Siemens EDA — part of Siemens Digital Industries Software, a subsidiary of Germany’s Siemens AG — account for about 80% of China’s EDA market. None of the three companies immediately responded to requests for comment.

In fiscal year 2024, Synopsys reported that its sales in China were approximately $1 billion, constituting about 16% of its revenue. Cadence said China accounted for $550 million, or 12% of its revenue.

Synopsys shares fell 9.6% on Wednesday, while Cadence shares lost 10.7%.

In 2022, the Biden administration imposed restrictions on the sale of the most advanced chip design software to China, but companies continued to sell export control-compliant products to the country.

Donald Trump, in the first year of his presidency, banned China’s Huawei from using American EDA tools. Huawei is seen as a new competitor to Nvidia with its “Ascend” AI chips.

Nvidia CEO Jensen Huang recently warned that successive attempts by American administrations to weaken China’s artificial intelligence ecosystem through export controls have failed.

Last year, Synopsys signed a deal to acquire US simulation software company Ansys for $35 billion. The deal is awaiting approval from Chinese regulators. Ansys shares fell 5.3% on Wednesday.

On Wednesday, the US Federal Trade Commission announced that both companies would need to divest certain software tools for the deal to be approved.

Export restrictions have emboldened Chinese competitors, and the leading three EDA companies, Empyrean Technology, Primarius, and Semitronix, have significantly increased their market shares in recent years.