How Nvidia chips were smuggled to China via Supermicro

Nvidia has been in the crosshairs of the US-China tech war for years now.

China generated about $17 billion, or 13% of revenue in FY2025, but that share has since dropped to roughly 5% under tighter US export controls.

Caught between margin pressure and escalating curbs, the chip giant now finds itself at the center of allegations that a sophisticated backdoor channel was used to move advanced US AI hardware into China.

As per a federal indictment unsealed in New York, three men tied to Super Micro Computer, including co-founder Wally Liaw, are accused of helping move at least $2.5 billion worth of restricted server technology to China.

At the heart of the case is a simple allegation with major geopolitical weight.

Servers built with advanced Nvidia chips could not legally be exported to China without a US government license.

But, prosecutors alleged that the defendants bypassed this restriction by disguising the machines’ true destination.

A route built to avoid US controls

The prosecutors say the alleged scheme began with Supermicro servers assembled in the United States and routed through the company’s facilities in Taiwan.

And after moving through multiple South Asian nations, the servers were repackaged and quietly sent onward to China, the indictment summary said.

The key middleman, prosecutors allege, was an unnamed Southeast Asian company that appeared to be the official buyer.

On paper, that company looked like the final destination for the equipment, but investigators say it actually served as a pass-through for real coustomers in China.

That structure mattered because US export rules turn heavily on who the end user is and where the product ultimately goes.

Fake paperwork and dummy machines

What makes the case stand out is the level of detail in the alleged cover-up.

Prosecutors say no Commerce Department license had been secured for the China-bound shipments.

That meant the entire arrangement depended on hiding the true destination from both the manufacturer and the US authorities.

They allegedly went much further than paperwork.

According to the Justice Department, the group staged thousands of non-working “dummy” servers for inspections while the real machines had already been sent to China.

Prosecutors also allege that Nvidia chip serial numbers were duplicated to help the machines pass compliance checks.

In effect, investigators say the operation relied on fake end-user paperwork, staged hardware, and altered labels.

Together, these created the illusion of compliance while restricted AI systems were moved through the back door.

A massive scheme with wider fallout

The scale is one reason the case is getting such close attention.

Prosecutors say the alleged arrangement generated about $2.5 billion in revenue from 2024 through 2025, including roughly $510 million in sales during a three-week period in 2025.

The three defendants are Yih-Shyan “Wally” Liaw, Ruei-Tsang “Steven” Chang, and contractor Ting-Wei “Willy” Sun.

US authorities say Liaw and Sun were arrested, while Chang remains at large.

Supermicro said after the indictment was unsealed that the three were associated with the company, that two employees had been placed on administrative leave, and that its relationship with the contractor had been terminated.