Chinese PCBs Under Nvidia Chips Raise U.S. Security Alarms

Printed circuit boards (PCBs) are the unsung heroes of the modern technological landscape, forming the critical foundation upon which virtually every electronic component, including the powerful processors driving the artificial intelligence revolution, operates. However, this quiet necessity has become a significant national security concern for the United States, as the vast majority of these essential components, powering everything from Nvidia’s groundbreaking AI accelerators to a multitude of other advanced systems, are manufactured in China.

The inherent complexity of PCBs presents numerous vulnerabilities, offering sophisticated adversaries myriad opportunities to introduce malicious components or alter functionalities. These potential threats have escalated to a point where the U.S. Department of Defense is now mandating that a substantial portion of its PCB procurements originate from the shrinking pool of domestic manufacturing facilities.

“Chips, substrates, PCBs represent multiple avenues of attack for a potential malicious actor,” stated Mike Cadenazzi, Assistant Secretary of the Army for Industrial Base Policy, in a recent interview. He elaborated on the gravity of the situation, positing that in a worst-case scenario, a compromised PCB could lead to critical failures, such as “a missile malfunctioning in flight.”

Historically, the U.S. accounted for approximately 30% of the global PCB supply. That figure has plummeted to a mere 4%, according to the Printed Circuit Board Association of America (PCBAA). This stark decline is largely attributable to the formidable manufacturing capacity and cost advantages enjoyed by state-sponsored enterprises in China, where lower material and labor costs further bolster their competitive edge. David Schild, Executive Director of PCBAA, highlighted the precariousness of the situation, noting that “six out of ten PCBs are now made in mainland China,” a reality he described as a “risky dependency.”

Al Shaffer, a former Deputy Under Secretary of Defense who played a key role in technology acquisition decisions during both the Obama and Trump administrations, echoed these concerns, characterizing PCBs as “the easiest place to disrupt an electronics chain” due to the inherent ability to conceal unauthorized modifications within their intricate layers and substrates.

In response to these escalating risks, the U.S. government is actively exploring measures to bolster domestic PCB manufacturing. Lawmakers in both chambers of Congress have introduced legislation proposing financial incentives for both the construction of new American factories and the procurement of domestically produced circuit boards. These legislative efforts are unfolding against a backdrop of heightened geopolitical tensions between the U.S. and China, particularly in their intense competition for AI supremacy. Earlier this year, the U.S. government formally accused Chinese entities of engaging in “industrial-scale campaigns” aimed at illicitly acquiring U.S. AI systems, signaling an intent to hold foreign actors accountable for such actions.

Beyond national security implications, the current supply chain landscape presents a fundamental challenge: a sheer deficit in production capacity to meet the burgeoning demand from both the AI sector and defense applications.

The landscape of U.S.-based PCB manufacturers is notably concentrated, with TTM Technologies and Sanmina being the only two publicly traded companies in this critical sector. Both entities are currently experiencing unprecedented growth, mirroring the broader expansion of the AI hardware ecosystem. TTM Technologies has seen its stock surge by nearly 500% over the past year, while Sanmina’s shares have more than tripled, underscoring the significant market interest and demand.

Adding to the supply-side pressures, the ongoing global conflicts in the Middle East and Ukraine are exerting considerable strain on the availability of essential raw materials. The conflict involving Iran, in particular, has disrupted the flow of certain key components from the region. Victory Giant, a prominent Chinese PCB manufacturer and a key supplier to Nvidia, issued a warning in April that escalating tensions in the Middle East could lead to a significant increase in the prices of critical inputs such as copper and resin.

This supply chain volatility has already translated into tangible cost increases. According to a Goldman Sachs report cited by Reuters, PCB prices saw a surge of up to 40% between March and April. TTM Technologies confirmed to CNBC in May its intention to implement price increases ranging from 5% to 25%.

“We are competing directly with the demand from the AI sector,” explained Cathie Gridley, an Executive Vice President at TTM Technologies, in a conversation with CNBC. “The commercial market is willing to pay significantly higher prices to secure access to available capacity, which inherently drives prices up across the entire industry.”

In a strategic move to address the capacity constraints and to fortify the U.S. manufacturing base against Chinese dominance, TTM Technologies is undertaking an aggressive expansion of its domestic operations. The company is set to commence production at a new facility in Syracuse, New York, in the near future, and is also developing an even larger plant in Wisconsin, slated to begin operations this year. Once these facilities are fully operational, TTM will operate a total of 18 manufacturing sites in the U.S., complementing its existing seven facilities in Asia, with its largest offshore operation remaining in China.

The Indispensable Role of PCBs

A recent tour of TTM’s Santa Ana, California facility, its oldest and most technologically advanced U.S. plant, offered an in-depth look at the intricate PCB manufacturing process and highlighted the nation’s concerted efforts to regain parity with China’s manufacturing prowess.

While TTM Technologies maintains client confidentiality, CEO Edwin Roks confirmed to CNBC that the company is a key supplier to “the big guys” in the AI space. This exclusive client list would undoubtedly include industry giants such as Nvidia, Google, and Apple. The fundamental reason for this is that no chip, regardless of its sophistication or the device it powers – from a miniature AirPod to a massive Nvidia Vera Rubin server rack – can function without being interconnected to a substrate or PCB.

The global PCB market is projected for robust growth, with electronics research firm Prismark Partners forecasting a 12.5% expansion this year, reaching nearly $96 billion, and further projected to climb to $123 billion by the end of the decade.

The complexity and cost of PCBs can vary significantly, with designs ranging from a single layer to an astonishing 140 layers, and prices from single digits to as high as $100,000, according to TTM.

“Moore’s Law is reaching its limits,” observed Roks, referencing the historical observation that computing power doubles approximately every two years. “We can no longer increase the complexity of individual chips to the same extent. Therefore, the solution lies in integrating multiple chips, and that’s precisely where our expertise comes into play.”

Gridley, who oversees TTM’s crucial aerospace and defense business segment, emphasized the indispensable role of PCBs: “Chips don’t have the ability to function independently. They must be mounted on a board for the entire integrated system to operate effectively.”

Following the wafer fabrication and subsequent packaging into larger, high-performance chips like Nvidia’s Graphics Processing Units (GPUs), these chips are then affixed to a circuit board. This board is meticulously designed with an intricate “map” dictating the precise placement of each component.

The creation of this “bare board” involves the lamination of multiple layers, often utilizing increasingly scarce materials such as copper and resin, alongside precious metals like gold, palladium, and immersion tin.

“We rely on a limited number of suppliers for certain critical materials, such as copper foil, within the United States,” Gridley pointed out. “A disruption to even a single one of these sole-source suppliers could potentially cripple the entire industry.”

The intricate layering process is fundamental to creating dense pathways that facilitate the high-speed travel of electrical signals, enabling seamless communication between multiple chips and their integration into larger systems. The subsequent assembly phase involves attaching chips and other circuitry to a resin substrate or bonding them to designated pads on the PCB using solder balls.

This complex manufacturing process can extend up to six months and demands substantial energy and water resources. TTM reported that in 2024, its global operations consumed energy equivalent to that of 70,000 homes and utilized 2.1 billion gallons of water. The company has set ambitious sustainability targets, aiming to transition to 60% renewable energy and achieve a 35% water recycling rate.

At TTM’s largest dedicated facility in China, nearly three-quarters of the PCBs produced are destined for data centers. Conversely, at TTM’s California plant, a significant 71% of production is allocated to aerospace and defense applications. This strategic allocation is becoming increasingly important, as new legislation commencing next year will legally mandate that defense electronics originate from U.S. manufacturers.

In a bipartisan effort to bolster the domestic industry, senators from both parties introduced the Protecting Circuit Boards and Substrates Act in May. This legislation offers a 25% tax credit to companies that opt for domestically manufactured circuit boards. A companion bill in the House of Representatives proposes $3 billion in grants specifically for U.S. PCB manufacturers. Both bills are currently under consideration, forming part of a broader governmental strategy to counterbalance the significant state subsidies that Chinese companies receive from Beijing.

“Certain adversaries possess highly sophisticated methods of attack,” acknowledged DOD’s Cadenazzi. He detailed potential threats, including mechanisms designed to “siphon off data” back to China, degrade system performance, or interfere with weapon systems.

Cadenazzi provided a stark illustration: “A specific code is activated, and then, in conjunction with the chip, the PCB makes a decision to disrupt the guidance of a munition, causing it to land in an unintended location.”

Roks described these potential scenarios as “very frightening,” underscoring the urgent need for “it to be in the U.S. and soon it has to be in Europe.”

Nvidia and its assembly partners actively mitigate these risks through rigorous physical inspections of all PCBs, employing advanced X-ray technology and AI-driven image detection tools to identify any anomalies. Nvidia opted not to provide comment for this report.

The Financial Imperative: Making the Numbers Add Up

Transitioning manufacturing back to the United States necessitates substantial investment. For major technology corporations, demonstrating long-term profitability for such a strategic shift is paramount to securing shareholder confidence and satisfying Wall Street analysts.

The PCBAA’s Schild observed that many corporate executives “indicate that risk is a part of their cost analysis,” and acknowledge the strategic importance of supply chain diversification.

“However, of course, the numbers need to pencil out,” he emphasized. The PCBAA estimates that the construction of a new PCB manufacturing facility can range from $250 million to $400 million.

In addition to TTM Technologies’ significant domestic expansion, Sanmina is also scaling up its operations, enhancing its two manufacturing sites in California, while simultaneously expanding its presence in China and Singapore.

A burgeoning ecosystem of innovative startups is also contributing to solutions. Quilter, founded by a former SpaceX engineer, is leveraging AI to design increasingly complex circuit boards. Itera, meanwhile, is pioneering “fluid” circuit boards, a novel technology that allows for rapid physical rewiring, potentially reducing the need for frequent board replacements.

“The most effective strategy we can pursue is the development of a robust domestic PCB industry that can establish competitive pricing against subsidized foreign competitors, thereby offering U.S. firms more resilient and trusted domestic sourcing options,” stated Cadenazzi.