By Karen Freifeld

(Reuters) -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 is 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. In a filing with the U.S. Securities and Exchange Commission, the company said it was “pleased” to reach settlements with the Justice and Commerce departments.

Cadence shares rose 6.5% 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.

Cadence and its subsidiary Cadence China exported electronic design automation tools at least 56 times to CSCC between 2015 and 2020, with certain Cadence China employees facilitating business with NUDT while knowing CSCC was an alias for the restricted university, court papers said. They also transferred EDA tools to Phytium Technology Co, a semiconductor company closely associated with NUDT, until 2021, without obtaining required licenses, according to court papers.

NUDT and Phytium did not immediately respond to requests for comment.

Cadence agreed to plead guilty to one count of conspiracy to commit export control violations. It is expected to be on probation for three years, meaning it cannot commit any further violations and has to fulfill its obligations under the plea agreement. The $140 million covers criminal penalties, forfeiture and a civil penalty imposed by the Commerce department.

Cadence, whose customers include major semiconductor manufacturers and companies such as Nvidia and Qualcomm, is known for its electronic computer-aided design software.

Cadence was run for over a decade by Lip-Bu Tan, a Malaysian-born Chinese American business executive appointed chief executive of Intel Corp in March. Tan was CEO of Cadence from 2008 through December 2021, which includes the period the sales took place, and was executive chairman until May 2023.

A spokesman for Lip-Bu Tan did not immediately respond to a request for comment.

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.

Electronic design automation 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.    

(Reporting by Karen Freifeld; additional reporting by Eduardo BaptistaEditing by Chris Sanders, Rod Nickel and Nia Williams)