A Co-Founder Used Hair Dryers to Remove Serial Numbers From $2.5 Billion in NVIDIA Chips. Then He Shipped Them to China.
Super Micro Computer co-founder Wally Liaw was arrested for smuggling $2.5 billion worth of NVIDIA AI chip servers to China using fake documents and dummy hardware. The case is the largest known AI chip smuggling operation and echoes Cold War technology export battles.
Key Takeaways
- •Super Micro co-founder Wally Liaw arrested for smuggling $2.5 billion in NVIDIA AI chip servers to China
- •Conspirators used hair dryers to remove serial numbers, created dummy servers as decoys
- •Largest known technology smuggling case in US history, dwarfing the 1987 Toshiba-Kongsberg scandal
- •Super Micro shares dropped 33% in a single trading session after the indictment
- •Export controls on advanced computing trace back to CoCom (1949), established to contain Soviet technology access during the Cold War
Root Connection
Export controls on advanced computing trace back to CoCom, the Coordinating Committee for Multilateral Export Controls, established in 1949 to prevent the Soviet Union from accessing Western technology. The current AI chip war echoes the 1987 Toshiba-Kongsberg scandal, when Japanese and Norwegian companies illegally sold submarine-quieting milling machines to the USSR. Congress was so furious that lawmakers smashed a Toshiba boombox on the Capitol steps. The tools change. The game does not.
Timeline
CoCom (Coordinating Committee for Multilateral Export Controls) is established by Western nations to prevent the Soviet Union from acquiring advanced technology. It will govern tech exports for 45 years.
The Toshiba-Kongsberg scandal erupts when it is revealed that Toshiba Machine and Norway's Kongsberg Vaapenfabrikk illegally sold submarine-quieting CNC milling machines to the Soviet Union. Congress holds furious hearings.
CoCom is replaced by the Wassenaar Arrangement, which continues multilateral export controls on dual-use technologies. 42 countries participate.
The US Bureau of Industry and Security imposes sweeping export controls on advanced semiconductors to China, targeting NVIDIA A100/H100 GPUs and ASML lithography equipment.
NVIDIA creates the A800 and H800 chips, downgraded versions specifically designed to comply with export restrictions while still being sold to Chinese customers. The US tightens rules again in October 2023.
Super Micro Computer co-founder Wally Liaw begins an alleged scheme to smuggle NVIDIA AI servers to China using fake documents, dummy servers, and serial number removal.
Liaw is arrested in California. Federal prosecutors allege $2.5 billion in NVIDIA chip servers were smuggled to China. Super Micro shares drop 33% in a single day.
On March 19, 2026, federal agents arrested Wally Liaw at his home in California.
Liaw co-founded Super Micro Computer in 1993. The company builds high-performance servers. It is one of the largest server manufacturers in the world, with annual revenue exceeding $14 billion. NVIDIA is one of its most important suppliers.
According to the federal indictment, Liaw and two associates orchestrated a scheme to smuggle approximately $2.5 billion worth of NVIDIA AI chip servers to China. The operation allegedly ran for over a year, using fake export documents, shell companies, and a technique that sounds almost absurd until you realize how effective it was.
They used hair dryers.
Prosecutors allege that Liaw's team heated NVIDIA server chassis with consumer hair dryers to soften the adhesive on serial number stickers. They peeled the stickers off, repackaged the high-end GPU servers in generic housings, and shipped them through intermediary countries to disguise the final destination. To cover the paper trail, they sent dummy servers, loaded with lower-specification chips that did not violate export controls, to authorized buyers in permitted countries.
The authorized buyers received legal hardware. The actual NVIDIA AI chips went to China.
According to prosecutors, the conspirators used hair dryers to heat and remove serial number stickers from NVIDIA servers before repackaging them in generic housings. Dummy servers with lower-specification chips were sent to authorized destinations to create a paper trail.
— Federal indictment, March 2026
The scheme is the largest known technology smuggling case in United States history. The $2.5 billion figure dwarfs every previous case. For comparison, the Toshiba-Kongsberg scandal of 1987, which nearly triggered a trade war between the US and Japan, involved equipment worth roughly $17 million.
Super Micro's stock dropped 33% in a single trading session after the news broke. Liaw resigned from the company's board. Two co-conspirators remain at large.
To understand why this matters, you need to understand what these chips actually do.
NVIDIA's AI chips, particularly the H100 and its successors, are the engines that power large language models, image generators, and the entire generative AI industry. Training a frontier AI model requires thousands of these chips working in parallel. Without access to them, building competitive AI systems becomes dramatically harder.
China knows this. The United States knows this. And the export controls that triggered this smuggling operation exist precisely because of that knowledge.
The $2.5 billion figure makes this the largest known technology smuggling case in US history. For context, the entire Toshiba-Kongsberg scandal of 1987 involved equipment worth roughly $17 million.
— ROOT•BYTE analysis
The controls have roots that go back seventy-seven years.
In 1949, as the Cold War hardened, Western nations established CoCom, the Coordinating Committee for Multilateral Export Controls. Its purpose was simple: prevent the Soviet Union from acquiring advanced Western technology that could be used for military purposes. CoCom controlled exports of electronics, computers, telecommunications equipment, and machine tools for forty-five years.
The system was not perfect. The most notorious failure was the Toshiba-Kongsberg scandal. In 1987, it was revealed that Toshiba Machine (Japan) and Kongsberg Vaapenfabrikk (Norway) had illegally sold computer-controlled milling machines to the Soviet Union. These machines allowed the USSR to manufacture quieter submarine propellers, potentially nullifying a significant Western naval advantage.
The US reaction was volcanic. Congress held public hearings. Lawmakers literally smashed a Toshiba boombox on the steps of the US Capitol for the cameras. The US imposed sanctions. Toshiba Machine's chairman and several executives resigned. Norway prosecuted Kongsberg employees.
The dollar value of the illegal Toshiba-Kongsberg sale was approximately $17 million.
The Super Micro case involves $2.5 billion.
CoCom was dissolved in 1994, after the Soviet Union collapsed. It was replaced in 1996 by the Wassenaar Arrangement, a broader multilateral framework with forty-two participating countries. Wassenaar covers dual-use technologies, items that have both civilian and military applications.
AI chips are the quintessential dual-use technology. An NVIDIA H100 can train a model that writes poetry. The same chip can train a model that identifies military targets from satellite imagery. The hardware does not care what the software does with it.
In October 2022, the US Bureau of Industry and Security imposed sweeping new export controls targeting China. The rules specifically restricted the sale of advanced AI chips, including NVIDIA's A100 and H100 GPUs, and the lithography equipment made by ASML that is needed to manufacture them.
NVIDIA responded by creating downgraded versions of its chips. The A800 and H800 were designed specifically to fall below the performance thresholds set by the export controls. They were legal to sell to China. They were also less powerful.
China responded by stockpiling. Chinese companies bought as many chips as they could before restrictions tightened further. Reports in 2023 indicated that major Chinese tech firms had accumulated significant reserves of NVIDIA hardware.
But stockpiling has limits. The chips are consumed as they are deployed in data centers. They degrade. New models require more compute. The demand for frontier AI chips in China is, by all accounts, insatiable.
That demand is what allegedly motivated Liaw's operation.
The mechanics of the scheme reveal something important about the vulnerability of technology supply chains. Serial numbers are the primary mechanism by which chip manufacturers and government agencies track where hardware ends up. If you remove the serial numbers, you break the chain of custody. A server that cannot be identified cannot be traced to a prohibited destination.
Hair dryers. That was the weak point in a multibillion-dollar export control regime.
The case raises questions that extend beyond one indictment.
How many other smuggling operations are running that have not been detected? If a co-founder of a major, publicly traded server company was allegedly running this scheme, what about smaller companies with less oversight? The US government has prosecuted several smaller chip smuggling cases in 2025 and 2026, but the Super Micro case suggests the scale may be far larger than previously understood.
NVIDIA faces a difficult position. The company designs the most sought-after AI chips in the world. It complies with export controls. It created downgraded chips specifically for restricted markets. But it cannot control what happens to its products after they are sold to authorized distributors. The Super Micro case demonstrates that the distribution layer, not the manufacturer, may be the weakest link.
For China, the calculus is straightforward. Access to frontier AI chips is a strategic imperative. If legal channels are restricted, other channels will be found. The history of export controls, from CoCom to Wassenaar to the current chip restrictions, shows a consistent pattern: controls create incentives for circumvention, and circumvention schemes become increasingly sophisticated over time.
The Toshiba-Kongsberg scandal involved specialized industrial equipment sold through a small number of channels. The Super Micro case involves consumer-grade tools (hair dryers), commodity shipping infrastructure, and a supply chain so complex that tracking individual servers across the globe is genuinely difficult.
The technology has changed. The game has not.
Wally Liaw faces charges that carry a maximum sentence of decades in federal prison. His trial will likely become a landmark case in the legal history of technology export enforcement. Super Micro, which was already under scrutiny from an accounting scandal and a brief Nasdaq delisting in 2024, faces an existential reputational crisis.
And somewhere, in a data center whose location will never appear in any export filing, NVIDIA chips with no serial numbers are training models that will compete with the ones being trained in the United States.
The Cold War was about missiles and submarines. This war is about matrix multiplication.
The stakes, arguably, are higher.
(Sources: Federal indictment via DOJ, CNBC, CNN, Fortune, Reuters, US Bureau of Industry and Security, Wassenaar Arrangement Secretariat, Congressional Research Service reports on CoCom and Toshiba-Kongsberg)
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