US gov't set to ban Huawei intermediary Sophgo over AI chip supplies — partnership skirted US chip sanctions

The U.S. government will add Sophgo, a Chinese tech company, to the Department of Commerce's Entity List for being an intermediary between blacklisted Huawei and TSMC, reports Reuters. For Sophgo, being placed on the Entity List means that it will no longer be able to procure advanced chips, effectively signaling the end of its operations. On the other hand, Huawei will likely try to find other intermediaries to place orders for different chips from TSMC.

Since September 2020, Huawei has been unable to legally purchase chips made using American technologies (i.e., virtually all chips). Sophgo violated U.S. export rules, and the U.S. Commerce Department is therefore expected to add it to its Bureau of Industry and Security's Entity List. Companies on the Entity List face stringent export restrictions, requiring a license for shipments, which are usually denied. As a result, Sophgo will be unable to place its orders with TSMC or buy chips outside of China, spelling the end for the company. 

Earlier this year, Sophgo placed an order for Huawei-designed Virtuvian computing chiplets for the company's Ascend 910 processor with TSMC, violating U.S. sanctions. Research firm TechInsights uncovered the issue during a teardown of Huawei's Ascend 910 processor. After TSMC confirmed the match, it ceased shipments to Sophgo and alerted U.S. and Taiwanese authorities. 

Sophgo is affiliated with Bitmain, a Chinese Bitcoin mining equipment supplier. The company is partly owned by Micree Zhan, Bitmain's co-founder, who indirectly holds a 23% stake in Sophgo through an investment company. Although Sophgo has denied any direct or indirect business with Huawei, Bitmain and Sophgo have reportedly supplied AI processors to Chinese government entities, including state-owned firms, universities, and police departments, according to a Reuters report. 

Bitmain, known for its Antminer brand, is a major supplier of cryptocurrency mining hardware. The company has distanced itself from the controversy, stating that it is not involved in the investigation. However, Sophgo communicated with the U.S. Federal Communications Commission in 2023 using a Bitmain email address, which clearly suggests a connection between the two companies. 

Although Huawei and other Chinese entities will be unable to use Sophgo to procure advanced chips, it appears to be a common practice to use proxies to obtain sophisticated processors they are not supposed to obtain. At this point, no one knows how many more intermediaries Huawei might be using to acquire those products.