China Announces Nvidia's Antitrust Violation Linked to 5-Year-Old Acquisition; Shares Drop Over 2% Pre-Market

TradingKey - On September 12, China’s State Administration for Market Regulation (SAMR) announced that Nvidia has violated antitrust laws and failed to comply with restrictive conditions set by the SAMR at the time of its acquisition of Mellanox. As a result, a further investigation has been launched. Nvidia (NVDA) saw its pre-market shares drop more than 2%.

Late last year, the SAMR initiated an investigation into Nvidia's acquisition of Mellanox and related agreements. Nvidia completed the $6.9 billion acquisition of Mellanox in 2020. Mellanox is an Israeli technology company providing networking solutions for data centers and servers. This acquisition marked a significant step in Nvidia’s transformation from a GPU manufacturer to a data center company.

In 2020, the transaction received SAMR’s conditional approval, but regulators now believe Nvidia has not upheld its commitments. The SAMR’s assessment at the time indicated that Nvidia’s acquisition of Mellanox would significantly impact key technology markets globally and in China, specifically in the areas of GPU accelerators, dedicated network interconnect devices, and high-speed Ethernet adapters. It was judged that the acquisition had or could have exclusionary or restrictive effects on competition in these markets. This assessment led to the imposition of conditional restrictions, which now serve as the basis for the current antitrust violation allegations against Nvidia.

Analysts suggest that the further investigation into Nvidia will increase the uncertainty of its business prospects in China and signifies heightened regulatory scrutiny by Chinese authorities.

In recent months, Nvidia has faced challenges in its chip sales to China. Earlier this year, the sale of Nvidia's H20 chip, specifically designed for the Chinese market, was banned in China. On July 31, Cyberspace Administration of China stated there were serious security issues with the Nvidia H20 chip and conducted interviews. In August, Nvidia reached an agreement with the U.S. government to obtain a license to sell chips to China, contingent on remitting 15% of this revenue to the U.S. government. However, Nvidia’s Q2 financial report indicated that no H20 chips were sold to China in August, suggesting potential ongoing sales barriers.

This situation arises amid escalating U.S.-China tech tensions. On September 12, the U.S. Department of Commerce added 23 Chinese entities to its export control list, which includes 13 semiconductor and integrated circuit-related companies. Concurrently, China’s Ministry of Commerce announced an anti-discrimination investigation in the U.S. integrated circuit sector and launched an anti-dumping investigation on U.S.-origin analog chips.

Analysts believe that the SAMR’s announcement of Nvidia’s antitrust violations could complicate and render the upcoming U.S.-China trade talks in Spain this Sunday more unpredictable.