Cadence Design Systems has agreed to plead guilty and pay over US$140 million in penalties after the United States government accused the company of violating export control laws by selling chip design software to a Chinese military-linked university. The decision forms part of a settlement with the US Department of Justice and the Department of Commerce, announced on 29 July.
The California-based firm is alleged to have exported advanced electronic design automation (EDA) tools to front companies acting on behalf of China’s National University of Defence Technology (NUDT), an institution known to support military simulation and nuclear explosion modelling.
Illegal sales to restricted Chinese entities
According to court documents, Cadence and its China-based subsidiary sold software and hardware products at least 56 times between 2015 and 2020 to the Central South CAD Centre (CSCC), an alias for NUDT, which has been under US trade restrictions since 2015. The Commerce Department expanded the scope of these restrictions in 2019 and 2022, identifying additional names and locations associated with NUDT, including Hunan Guofang Keji University and CSCC.
During this time, certain Cadence China employees allegedly knew of CSCC’s true identity and continued to facilitate business. Cadence is also said to have transferred EDA tools to Phytium Technology, a Chinese semiconductor firm closely associated with NUDT, without the required US licences. These transactions reportedly continued until 2021.
The Justice Department charged Cadence with conspiracy to violate export control laws. As part of the plea agreement, the company will be on probation for three years, during which it must avoid further violations and comply fully with the terms of the settlement.
The US$140 million settlement amount comprises criminal fines, asset forfeiture, and a civil penalty levied by the Commerce Department.
Response from Cadence and market impact
In its latest quarterly results, also released on 29 July, Cadence disclosed a related charge and expressed satisfaction with the resolution. “Cadence is pleased to have reached settlements with the Justice and Commerce Departments,” the company stated in a filing with the US Securities and Exchange Commission.
Following the announcement, Cadence’s share price rose by 6.5%, driven by positive investor response to the resolution of the legal matter and the company’s strong quarterly performance.
Cadence is widely recognised for its EDA software, which major semiconductor manufacturers, including Nvidia and Qualcomm, use. The tools are vital in the design and testing of semiconductors, ensuring functionality and reliability before manufacturing.
Background of investigation and broader implications
The US government’s investigation into Cadence began over four years ago, focusing on historical sales to Chinese customers. Cadence received its first subpoena from the Commerce Department in February 2021, requesting documents concerning its Chinese business dealings. A second subpoena was issued by the Justice Department in November 2023.
Entities are added to the US Entity List if their activities are deemed contrary to national security or foreign policy interests. Once listed, US companies are barred from exporting goods or technologies to them without special licences, which are typically denied.
NUDT, a long-time occupant of the Entity List, is known for developing high-performance computing technologies used in military research, including the Tianhe-2 supercomputer. This machine, once ranked among the most powerful in the world, has reportedly been used in nuclear explosive modelling — a major concern for US national security agencies.
Cadence was led by Tan Lip-bu, a Malaysian-born Chinese-American, during the period in question. Tan served as CEO from 2008 until December 2021 and later as executive chairman until May 2023. He is now the CEO of Intel. A representative for Tan did not respond to media inquiries regarding the charges.
As US-China trade negotiations continue, the Cadence case highlights Washington’s continued commitment to enforcing export restrictions, despite easing some rules in diplomatic discussions. The case also highlights growing scrutiny of tech transfers that could enhance China’s military capabilities.
Cadence’s exposure to the Chinese market has declined amid these tensions, with revenue from China falling to 12% in 2024 from 17% the previous year.
