By Karen Freifeld
(Reuters) -Cadence Design is expected to pay over $100 million to the U.S. government as part of a deal to resolve an investigation into sales of its chip design products to a Chinese military university believed to be involved in simulating nuclear explosions, according to two people familiar with the matter.
Cadence is accused of illegally selling chip design technology to front companies representing China’s National University of Defense Technology, the sources said.
NUDT’s supercomputers are thought to support nuclear explosive simulation and military simulation activities, according to U.S. Commerce Department notices restricting shipments to the university.
San Jose, California-based Cadence, which said earlier this year it began settlement discussions with the U.S. over sales to China in December, did not immediately respond to a request for comment, nor did NUDT.
The Justice Department declined immediate comment. The Commerce Department did not immediately respond to a request for comment.
The potential deal, which comes as the U.S. and China meet for new trade talks, shows the U.S. is still willing to enforce U.S. export controls on China, even as it relaxes some of the restrictions as part of negotiations. The sources said the deal is not finalized.
NUDT was put on the Commerce Department’s restricted trade list in 2015 to keep it from using U.S. technology to power its supercomputers, according to department postings. Other aliases and locations were added to the university’s listing in 2019 and 2022, including Hunan Guofang Keji University, Central South CAD Center, and CSCC.
The U.S. investigation into Cadence, which began more than four years ago, involves “historical sales by Cadence to customers in China,” according to a company filing. Cadence received a subpoena from the U.S. Commerce Department in February 2021, demanding records related to certain customers in China. A related November 2023 subpoena followed from the Justice Department over the company’s business activity in China.
Cadence sold its EDA technology to NUDT through the CSCC or Central South CAD Center alias about 50 times between 2015 and 2020, according to one source familiar with the probe. Chip developer Tianjin Phytium Information Technology, which traces its roots to NUDT, also has been tied to Cadence sales for the university, another source said. Phytium was added to the restricted trade list in 2021. It did not immediately respond to a request for comment.
Several employees at a Chinese subsidiary of Cadence were terminated over the sales, one of the sources said.
Entities are placed on the restricted trade list, formally known as the entity list, for activities deemed contrary to U.S. national security or foreign policy interests. U.S. companies are not allowed to ship goods and technology to them without licenses from the Commerce Department, which are generally denied.
Cadence will hold a call about its second-quarter financial results at 2 p.m. Pacific Time (2100 GMT) on Monday. Cadence, whose customers include major semiconductor manufacturers and companies such as Nvidia and Qualcomm, is known for its electronic computer-aided design software.
Electronic design automation (EDA) tools are key to designing chips and verifying that they are bug-free. NUDT has developed chips to power university supercomputers, including Tianhe-2, once touted as the world’s best supercomputer, which the U.S. believes has been used in research on or the development of nuclear explosive devices.
Twelve percent of Cadence’s revenue came from China last year, down from 17% in 2023, amid regulatory developments and geopolitical tensions.
(Reporting by Karen Freifeld; additional reporting by Eduardo BaptistaEditing by Chris Sanders and Rod Nickel)
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