Cadence to plead guilty and pay $140 million to U.S. for China sales

Cadence Design agreed to plead guilty and pay more than $140 million to resolve U.S. charges for selling its chip design products to a Chinese military university believed to be involved in simulating nuclear explosions, the Justice Department said on Monday.

Cadence was accused of violating export controls by illegally selling chip design software and hardware to front companies representing China’s National University of Defense Technology.

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 noted a charge related to the legal proceedings in its quarterly results, also released on Monday.

Cadence shares rose 7.8% after it posted the news and its quarterly results.

The 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.

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, involved “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.

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.