If you recall, last week, the news broke that the US Bureau of Industry and Security (part of the Department of Commerce) had sent letters to Cadence, Siemens, and Synopsys telling them to stop selling specific EDA tools in China. The BIS is concerned that these technologies are used to create military capability, which it said is against the US national interest. [“It said” because I can find no online source for the letter/notification on the Bureau’s notification, press release, or licensing websites at https://www.bis.gov/. If you’ve found an original source, please let me know!]

I spent time earlier this week with Siemens Digital Industries Software at their Realize LIVE event in Detroit (more on that later). I spoke with various people at the event about the EDA/China … thing. Here’s what I learned:

Siemens received this notification late on the Friday before Memorial Day weekend. This seems like a very awkward time to issue any sort of “change this right now” notification to an American company. Who, honestly, is still at work? Whom can they contact to do anything about it? Everyone is already off contemplating their long holiday weekend. I can’t help but wonder if this timing was to prevent the news from hitting during a specific news cycle, perhaps buried in the post-Memorial Day news glut. Or if they wanted the companies to not comply, for some reason. I don’t know how these things normally work, but Tuesday morning would have been sufficient, no?

Anyway,

Siemens immediately took action to “shut off access” in China for the specific products the BIS expressed concern about. Brenda Discher, SVP of Business Strategy and Marketing, Digital Industries Software, said, “We have stopped delivering, supporting, issuing, licensing, et cetera, technical support patches for those products.” [I believe those to be chip design tools but am not sure. See below.]

But that’s not everything Siemens sells in China, nor is it even the entirety of the EDA portfolio. Ms. Discher added, “We’re still doing EDA business in China … We are continuing with some of our PCB-related products.” I wonder about the chilling effect this news had on all the cited companies, on their business in China in general and on the global networks of companies relying on Chinese manufacturers of electronics components. We know that the shares of Ansys, Cadence and Synopsys all declined on the news.

We can tell from Ms. Discher’s comments that Siemens (and the other companies) are walking a tightrope: “We are very committed to China. We’re very committed to North America. We’ve been in China for more than 150 years [and] we are working with the US government right now to make them aware of how our technology is used across a ton of industries. This isn’t just in the Chinese military, … these things are in your coffee pot, right? These things are in all kinds of products.” Very true – and I don’t know how anyone can say “this software, sold to this buyer is used only for this end-application” since the same chip is likely used in all sorts of end-products. Yes, I’m sure there are very specific components with only military applications, but this seems a very broad brush.

Siemens released a statement on Wednesday from Digital Industries Software CEO Tony Hemmelgarn, that said “Siemens is working separately with stakeholders in the US and China to mitigate the impact of these new restrictions. Siemens continues to support our employees and customers around the world who are using our technology to transform the everyday.”

Mr. Hemmelgarn’s statement said that Siemens restricted access to “software and technology classified under Export Control Classification Numbers (ECCNs) 3D991 and 3E991.” You can find those here (3D991: https://www.bis.doc.gov/index.php/documents/regulations-docs/2334-ccl3-8/file and 3E991: https://www.bis.doc.gov/index.php/documents/regulations-docs/442-category-3-electronics-design-development-and-production/file). That’s a combined 120 pages that were created in 2016 and 2023 (and hasn’t technology changed since then?) that say things like 

“Note 1: The control status of equipment and “components” described in 3A001 or 3A002, other than those described in 3A001.a.3 to 3A001.a.10, 3A001.a.12 or 3A001.a.13, which are “specially designed” for or which have the same functional characteristics as other equipment is determined by the control status of the other equipment. “

I’m sure armies of lawyers and (I hope) electronics experts are parsing those 120 pages to map them against specific product capabilities. The three main US EDA companies all said they’ll need time to figure this out and we can certainly see why.

While this gets sorted out, there may be a short-term hiccup in China’s ability to design and manufacture specific electronic components. But it’s also likely that this will encourage the pirating of US applications and the continued “development” of hacked US source code. That could lead to stronger Chinese competitors that challenge Cadence, Siemens and Synopsys’ EDA capabilities on a global level. And if the stalemate continues, Siemens and the others will have to let go their China-based colleagues, who will likely be hired by these Chinese software competitors. [Siemens told me they have no EDA developers in China, but they do have sales and support people there.]

It’s easier for a government to issue a blanket “no” than to get as into the details, as is probably needed here, to prevent unauthorized defense industry applications while still allowing “coffee pot”-types of use cases.

I don’t think anyone knows how this will end. Is this a bargaining chip as the US seeks to work out tariff agreements with China? I can’t imagine this is a new concern within the US defense community, so what prompted this Friday-before-a-holiday-weekend urgency? And can this be walked back, if it should be? Many unanswered questions.