What just happened? The Trump administration has taken a decisive step in its campaign to restrict China's access to advanced semiconductor technology, instructing leading US companies that produce chip design software to halt sales to Chinese customers. Several people familiar with the matter have told the Financial Times that the US Department of Commerce's Bureau of Industry and Security recently sent letters to major electronic design automation (EDA) firms – including Synopsys, Cadence Design Systems, and Siemens EDA – directing them to stop supplying their technology to the Asian nation.
These companies collectively control about 80 percent of China's EDA market, making them a critical part of the global semiconductor supply chain. EDA software, though a relatively small segment of the industry, is essential for designing and simulating new generations of chips, which underpin advancements in artificial intelligence and other cutting-edge technologies.
The move comes as Washington intensifies efforts to curb Beijing's ambitions in artificial intelligence and advanced computing. Earlier this year, the administration also banned Nvidia from selling its H20 chips to Chinese clients, marking the third round of such restrictions since 2022.
A Commerce Department spokesperson told the FT that the agency is "reviewing exports of strategic importance to China" and, in some cases, has "suspended existing export licenses or imposed additional licensing requirements while the review is pending."
The impact of these restrictions was immediately felt on Wall Street. Shares of Synopsys and Cadence fell sharply, dropping 9.6 percent and 10.7 percent, respectively, following reports of the directive. In fiscal year 2024, China accounted for roughly 16 percent of Synopsys' revenue – almost $1 billion – and about 12 percent of Cadence's sales.
Neither Cadence nor Siemens EDA responded to FT's requests for comment, while Synopsys CEO Sassine Ghazi stated during an earnings call, "We are aware of the reporting and speculation, but Synopsys has not received a notice from BIS. So, our guidance that we are reiterating for the full year reflects our current understanding of BIS export restrictions, as well as our expectations for a year-over-year decline in China [revenue]."
The timing of the directive is especially sensitive, as the US and China are engaged in delicate trade negotiations. Both sides recently agreed to a 90-day pause on new tariffs after talks in Geneva, but the new export controls underscore the fragility of this truce.
The broader context for these measures is a deepening technological rivalry between the world's two largest economies. The US has progressively tightened export controls on semiconductor technology to maintain its edge and prevent China from developing its advanced chips.
In response, China has accelerated its push for self-sufficiency, investing heavily in domestic chipmakers and EDA software developers. While US and German firms still dominate the EDA market in China, local competitors such as Empyrean Technology, Primarius, and Semitronix have made significant gains, with their shares rising more than 10 percent in early trading following the news of the US directive.
The restrictions are already reshaping the semiconductor landscape. US companies face the prospect of reduced revenues and diminished competitiveness in the world's largest semiconductor market, while Chinese firms are under pressure to innovate and replace foreign technology.
