CNBC's Kristina Partsinevelos joins 'Money Movers' to discuss reports that the U.S. embedded trackers into AI chip shipments to detect diversions to China.

Washington

US authorities have reportedly begun placing secret tracking devices in shipments of advanced semiconductors to monitor and prevent chips from being illegally diverted to China. These trackers, which vary in size and are hidden in server packaging, are used in select shipments under investigation and typically require either a court order or administrative approval.

The initiative follows recent arrests related to the illegal export of Nvidia chips and reports of a significant black market for these products in China. While Nvidia has denied embedding back doors in its chips and US officials have downplayed national security concerns, the challenge of tracking chips throughout the global supply chain remains significant.

Nvidia's chip smuggling problem

Reuters reporting today that U.S. authorities have been placing secret trackers into shipments of advanced semiconductors in an attempt to find chips that are being diverted into China. Christina Partsenevel is digging into that story for today's tech check. And Christina, this is this is interesting. Wonder how effective that is. Yeah, that's a good point. Well, U.S. authorities, like you said, just they may be tracking devices on shipments of advanced chips. But industry sources tell me we shouldn't expect to see these trackers on individual and video chips anytime soon. So the trackers are ranging from really tiny, tiny devices to smartphone sized units. Therefore, you can see them. And they're hidden in server packaging for select shipments under investigation. So while placing trackers typically requires a court order, export enforcement agents actually can sometimes act with just administration approval, which might have been the case in this story. That also suggests companies like Dell and Supermicro, which actually ship the servers, they package them containing the high end NVIDIA chips, would need to be made aware, though neither unfortunately responded to my request for comments for this story. Tracking the entire server shipments is one thing, but monitoring individual chips is just far more complex. My sources say chip level tracking would require embedded software capable of sending signals. So that would essentially be turning every single chip into a beacon. NVIDIA has strongly denied putting any back doors in their chips after Chinese government concerns were raised just in the last week or so. And then U.S. Treasury Secretary Besson assured investors this morning on Bloomberg that there were, quote, no national security concerns here with NVIDIA chips. But the smuggling problem is real. Just last week, two Chinese nationals were arrested for illegally exporting millions of dollars worth of NVIDIA chips to China. While CEO Jensen Wang denies diversion is happening, multiple reports confirm a thriving black market in China with an estimated billion dollars worth of NVIDIA products. And this is according to the FT. Some will deny that billion dollar number, but that traded into China just last quarter alone. The tracking initiative does highlight a fundamental challenge in the global semiconductor supply chain, keeping tabs on where chips end up once they leave the factory, once they leave, you know, where they're being built in Taiwan remains almost impossible at scale, guys. Carl, Christina, thanks, Christina Parts, Nevelos.

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Geneva

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Breakdown