China launches antitrust investigation into Nvidia amid escalating US-China chip tensions

Amid heightened US-China chip tensions, Chinese regulators have launched an antitrust investigation into Nvidia, alleging that the US chip giant has violated the terms of its 2020 acquisition of Israeli networking company Mellanox Technologies.

According to Sina, RFI, and Bloomberg, the Chinese State Administration for Market Regulation (SAMR) announced on December 9, 2024, that it had initiated the probe into Nvidia's recent behavior and its compliance with conditions set when it approved the US$69 billion deal.

The SAMR stated that Nvidia had pledged to continue supplying relevant products to Chinese customers on a fair, reasonable, and non-discriminatory basis, and to refrain from bundling sales of its graphics processing units (GPUs) and Mellanox equipment. However, the regulator claims that Nvidia has repeatedly restricted GPU supply to the Chinese market since 2022, violating these commitments.

The Chinese government had initially approved the Nvidia-Mellanox deal on the condition that Mellanox provide competitors with information about new products within 90 days of supplying them to Nvidia. Additionally, Nvidia had agreed to ensure Chinese chipmakers could effectively integrate their products with Mellanox's technology.

In response, Nvidia stated it is "happy to answer any questions regulators may have about our business," adding that the company "wins on merit, as reflected in our benchmark results and value to customers, and customers can choose whatever solution is best for them."

The company further emphasized its commitment to "provide the best products we can in every region and honor our commitments everywhere we do business."

Possible retaliation to US sanctions

This development follows escalating tensions between the US and China over technology exports. The US Commerce Department recently added 140 Chinese semiconductor companies to its entity list on December 2, tightening restrictions on advanced chip and manufacturing equipment exports to China.

According to Jiwei, industry experts believe that the timing of China's antitrust probe against Nvidia is not coincidental. They suggest that the investigation serves as a response to Nvidia's alleged misconduct and a broader countermeasure to the US's unilateral export controls.

Sources familiar with the matter revealed to Jiwei that Chinese authorities initiated an investigation into Nvidia after receiving multiple complaints regarding the company's decision to cut off the supply of GPUs to the Chinese market. These actions, which allegedly began in 2022, have been viewed as a breach of Nvidia's commitments when it acquired Israeli networking company Mellanox Technologies in 2020.

Bloomberg Intelligence analysts released a note saying that China's investigation into Nvidia might be linked to a potential breach of a 2020 settlement agreement when Nvidia acquired Mellanox. It seems that the Asian nation believes Nvidia is not fulfilling its promises. Additionally, considering the potential for tariffs under the Trump administration, the probe likely has geopolitical motivations. China has a precedent of using its antitrust laws in such a manner.

Bloomberg Intelligence added that Nvidia's over 80% share in the AI accelerator market may continue to attract global antitrust scrutiny. Certain jurisdictions express concerns about how Nvidia might bundle its products, merging chip and networking solutions.

The Chinese government's antitrust investigation into Nvidia might lead to substantial financial penalties for the company. According to China's Anti-Monopoly Law, such fines could be quite significant. If Nvidia is found to have violated its commitments during the acquisition of Mellanox, and this behavior is determined to have harmed competition, the company could face a penalty of up to 10% of its annual sales in China. This could equate to hundreds of millions of US dollars.

In cases where Nvidia's actions are judged to be particularly severe, the fine might be increased by a factor ranging from two to five times the original amount, potentially reaching several billion US dollars. The magnitude of the penalty will be influenced by several factors, including the extent of the harm inflicted on competition, the duration of the violation, and whether Nvidia has undertaken any measures to mitigate the situation.

Source: Nvidia, December 2024