Advanced Micro Devices, known as AMD, has denied any wrongdoing for a deal that transferred key semiconductor technology to Chinese supercomputer manufacturers, universities, and supercomputer manufacturers affiliated with the military.

The Wall Street Journal reported that a joint venture signed in 2016 that led to AMD chips “rolling off Chinese production lines” had been inked without adequate regulatory oversight. The complex system of joint ventures set up by AMD in China put the transfer of chip intellectual property in a legal grey area that, until last week, remained outside the usual purview of US controls on tech transfer.

AMD responded to the claims on Friday, saying that the report made several factual errors and that it had been in touch with the Department of Defense and Commerce Department since 2015, the year before the joint venture was signed. It added that recent developments have made the topic sensitive in a way that it wasn’t at the time of the deal.

The California-based semiconductor designer licensed its proprietary designs of x86 processors for $293 million dollars plus any royalties coming from new chip designs. The chips, invented by Intel, are the foundation for modern high-speed computing and can be found in both consumer devices and state-of-the-art supercomputers.

In February 2016, AMD had set up a joint venture along with Chinese state- and privately owned companies under the name Tianjin Haiguang Advanced Technology Investment Co. Ltd. (THATIC). The newly set up company was co-owned by AMD, the Chinese Academy of Sciences, and other Chinese private and public companies.

AMD then set up another two companies in China, HMC and Hygon. AMD holds a 51% stake in Hygon, according a company filing. In 2018 Hygon produced Dhyana, a CPU processor almost identical to AMD’s EPYC model. More recent online reports say that AMD owns 30% of Hygon and 51% of HMC.

According to anonymous sources cited in the story, the Pentagon and the US Department of Commerce suspected that the joint venture violated export controls over national security risks that are reviewed by the Committee on Foreign Investment in the United States (CFIUS). They tried to block it by attempting to convince company representatives to submit the deal for review. However, the US Treasury Department, which has the final say in the CFIUS review process, agreed that AMD’s joint venture deal fell outside of its scope.

As of June 21, all three of AMD’s joint ventures in China are subject to the extended export ban. Sugon, one of AMD’s Chinese partners, “publicly acknowledged a variety of military end uses and end users of its high-performance computers,” thus US authorities decided that it is acting contrary to national security interests and placed it on the entity list.

According to the US Department of Commerce, Sugon, which manufactures half of China’s fastest supercomputers and is affiliated with the military, owns a majority stake in THATIC and minority stakes in HMC and Hygon. Sugon has used the Dhyana processor in its supercomputers, which are used by the Chinese military, the Department of Commerce said.

According to the report, AMD licensed its technology to THATIC which in turn passed it on to Hygon and HMC which produced processors and devices respectively.

In addition to the complex company structure, the Wall Street Journal reported that AMD intentionally stripped the x86 semiconductors from features that would definitively place it under export controls, such as encryption protocols.

AMD did not respond to TechNode’s requests for comment on Monday.

In 2016, AMD was struggling. Shares of its biggest competitor, Intel, was valued six times higher and the company was dependent on outsourcing the manufacturing of its IP. Under the guidance of a new CEO, it decided to monetize its precious IP to save itself from its financial problems.

The IP of semiconductors is guarded closely by manufacturers and governments alike, since design remains one of the most important and difficult aspects of the technology. Their importance in the development of supercomputers, which are used for military and other state functions, also makes them a highly coveted.

The year before AMD set up the intertwined joint ventures, the Obama administration stopped Intel from selling its Xeon processors to a supercomputer facility in China.

Eliza was TechNode's blockchain and fintech reporter until July 2021, when she moved to CoinDesk to cover crypto in Asia. Get in touch with her via email or Twitter.

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