US Government to Ban Sophgo for Skirting Chip Sanctions with Huawei AI Deal

The United States government is set to place Sophgo, a Chinese technology firm, on the Department of Commerce’s Entity List due to its role as a middleman for Huawei, which is already blacklisted, and Taiwan Semiconductor Manufacturing Company (TSMC), according to Reuters. Placement on the Entity List will prevent Sophgo from acquiring advanced chips, likely leading to the cessation of its business operations. Meanwhile, Huawei will probably seek new intermediaries to facilitate its chip orders from TSMC.

Since September 2020, Huawei has been prohibited from legally acquiring chips manufactured with U.S. technologies, which includes the majority of chips. Sophgo has breached U.S. export regulations, prompting the U.S. Commerce Department to anticipate adding it to the Bureau of Industry and Security’s Entity List. Firms on this list are subject to severe export controls and typically require a license for shipments, which are often denied. Consequently, Sophgo will no longer be able to fulfill its orders with TSMC or purchase chips from outside China, marking the potential end of its business.

Earlier in the year, Sophgo placed an order with TSMC for Virtuvian computing chiplets designed by Huawei for its Ascend 910 processor, contravening U.S. sanctions. The violation was discovered by the research firm TechInsights during a teardown of the Ascend 910 processor. Once TSMC verified the findings, it stopped its shipments to Sophgo and notified both U.S. and Taiwanese authorities.

Sophgo is linked to Bitmain, a prominent Chinese supplier of Bitcoin mining equipment, and is partially owned by Micree Zhan, Bitmain’s co-founder, who indirectly holds a 23% stake in Sophgo through an investment company. Despite Sophgo’s denials of any direct or indirect dealings with Huawei, reports by Reuters indicate that both Bitmain and Sophgo have supplied AI processors to various Chinese government bodies, including state-owned enterprises, universities, and police departments.

Bitmain, known for its Antminer series, is a leader in the cryptocurrency mining hardware market. The company has maintained its distance from the controversy, clarifying that it is not involved in the ongoing investigation. However, in 2023, Sophgo used a Bitmain email address to communicate with the U.S. Federal Communications Commission, suggesting a notable linkage between the two entities.

While Huawei and other Chinese firms won’t be able to use Sophgo to secure advanced chips, it is evident that using proxies to access high-end processors they aren’t entitled to is a standard practice. It remains unclear how many other intermediaries Huawei may be employing to procure these components.