How U.S. microchips are fueling Russia’s military — despite sanctions
Western microchips used to power smartphones and laptops are continuing to enter Russia and fuel its military arsenal, new analysis shows.
Trade data and manifests analyzed by CNBC show that Moscow has been sourcing an increased number of semiconductors and other advanced Western technologies through intermediary countries such as China.
In 2022, Russia imported $2.5 billion worth of semiconductor technologies, up from $1.8 billion in 2021.
Semiconductors and microchips play a crucial role in modern-day warfare, powering a range of equipment including drones, radios, missiles, and armored vehicles.
The sanctions evasion and avoidance is surprisingly brazen at the moment.
Elina Ribakova
senior fellow at the Peterson Institute for International Economics
Indeed, the KSE Institute — an analytical center at the Kyiv School of Economics — recently analyzed 58 pieces of critical Russian military equipment recovered from Ukraine’s battlefield and found more than 1,000 foreign components, primarily Western semiconductor technologies.
Many of these components are subject to export controls. But, according to analysts CNBC spoke to, convoluted trade routes via China, Turkey, the United Arab Emirates and elsewhere mean they are still entering Russia, adding to the country’s pre-war stockpiles.
A collection of 58 pieces of Russian weaponry captured from the battlefield in Ukraine, such and drones and missiles, contained more than 1,000 Western components, according to a study from the KSE Institute.
CNBC
“Russia is still being able to import all the necessary Western-produced critical components for its military,” said Elina Ribakova, senior fellow at the Peterson Institute for International Economics, and one of the authors of KSE Institute’s report.
“The sanctions evasion and avoidance is surprisingly brazen at the moment,” she added.
Murky supply chains
Not all advanced technologies are subject to Western sanctions on Russia.
Many are dubbed dual-use items, meaning they have both civilian and military applications, and therefore fall outside of the scope of targeted export controls. A microchip may have applications in both a washing machine and a drone, for instance.
Still, many of these products originate from Western nations with sweeping trade bans against Moscow and, specifically, its military. All U.S.-origin items except food and medicine are prohibited from reaching Russia’s army.
It’s difficult to stop strictly civilian microelectronics from crossing borders.
Sam Bendett
advisor at the Center for Navel Analyses
In KSE’s study, more than two-thirds of the foreign components identified in Russian military equipment ultimately originated from companies headquartered in the U.S., with others coming from Ukrainian allies including Japan and Germany.
CNBC was unable to verify whether the implicated companies were aware of the final destination of their goods. Swiss authorities said they were working with firms to “educate them on red flags,” while government spokespeople for the other countries cited did not immediately respond to a request for comment.
Separately, a study from the Royal United Services Institute found that Russia’s military uses over 450 different types of foreign-made components in its 27 most modern military systems, including cruise missiles, communications systems and electronic warfare complexes. Many of these parts are made by well-known U.S. companies that create microelectronics for the U.S. military.
More than two-thirds of tech elements recovered in KSE Institute’s study originated from companies headquartered in the U.S.
CNBC
“Over decades, non-Russian high-tech systems and technologies became more advanced and really have become industry and global standards. So, a Russian military, as well as its civilian economy, have become dependent,” Sam Bendett, advisor at the Center for Naval Analyses, said.
The ubiquity and wide-reaching applications of such technologies have led them to become intertwined in global supply chains and therefore harder to police. Meanwhile, sanctions on Russia are largely limited to Ukraine’s Western allies, meaning that many countries continue to trade with Russia.
“It’s difficult to stop strictly civilian microelectronics from crossing borders and from taking place in global trade. And this is what the Russian industry as well as the Russian military and its intelligence services are taking advantage of,” Bendett said.
Russia-China trade spikes
Those trade flows can be messy. Typically, a shipment may be sold and resold several times, often through legitimate businesses, before eventually reaching a neutral intermediary country, where it can then be sold to Russia.
Data suggests China is by far the largest exporter to Russia of microchips and other technology found in crucial battlefield items.
Sellers from China, including Hong Kong, accounted for more than 87% of total Russian semiconductor imports in the fourth quarter of 2022, compared with 33% in Q4 2021. More than half (55%) of those goods were not manufactured in China, but instead produced elsewhere and shipped to Russia via China and Hong Kong-based intermediaries.
China is really trying to accumulate and to make profits and gains on the fact that Russia is economically isolated.
Olena Yurchenko
“This should not be taken as a surprise because China is really trying to accumulate and to make profits and gains on the fact that Russia is economically isolated,” Olena Yurchenko, advisor at the Economic Security Council of Ukraine, said.
China’s trade department did not respond to a request for comment on the findings, nor did the Russian government.
Meantime, Moscow has also increased its imports from so-called intermediary countries in the Caucasus, Central Asia and the Middle East, according to national trade data.
Exports to Russian from Central Asia and Caucasus countries has increased significantly since Moscow’s full-scale invasion of Ukraine, trade data shows.
CNBC
Exports to Russia from Georgia, Armenia and Kyrgystan, for instance, surged in 2022, with vehicles, aircraft and vessels accounting for a significant share of the uptick. At the same time, European Union and U.K. exports to those countries rose, while their direct trade with Russia plunged.
“A lot of these countries really cannot sever certain types of trade with Russia, especially those nations which are either bordering Russia, like Georgia, for example … as well as nations in Central Asia, which maintain a very significant trade balance with the Russian Federation,” Bendett said.
The governments of Georgia, Armenia and Kyrgyzstan did not respond to CNBC’s request for comment on the increase in trade.
Sanctions clampdown
The burgeoning trade flows have prompted calls from Western allies to either get more countries on board with sanctions, or slap secondary sanctions on certain entities operating within those countries in a bid to stifle Russia’s military strength.
In June 2023, the European Union adopted a new package of sanctions which includes an anti-circumvention tool to restrict the “sale, supply, transfer or export” of specified sanctioned goods and technology to certain third countries acting as intermediaries for Russia.
The package also added 87 new companies in countries spanning China, the United Arab Emirates and Armenia to the list of those directly supporting Russia’s military, and restricted the export of 15 technological items found in Russian military equipment in Ukraine.
If we have certain moral values … we cannot be giving [to Ukraine] with one hand and then giving to Russia with the other.
Elina Ribakova
senior fellow at the Peterson Institute for International Economics
“We are not sanctioning these countries themselves. What we are doing is preventing an already sanctioned product, which should not reach Russia, from reaching Russia through a third country,” EU spokesperson Daniel Ferrie said.
However, some are skeptical that the measures go far enough — particularly when it comes to major global trade partners.
“[The sanctions] may work against, let’s say, Armenia or Georgia, which are not big trade partners for European Union or for the United States. But in when it comes, for instance, to China or to Turkey, that’s a very unlikely scenario,” the Economic Security Council of Ukraine’s Yurchenko said.
Others say that responsibility ultimately lies with the companies, which need to do more to monitor their supply chains and avoid their goods falling into the wrong hands.
“The companies themselves should have the infrastructure to be able to track it and comply with export controls,” Ribakova said.
“If we have certain moral values or national security objectives, we cannot be giving [to Ukraine] with one hand and then giving to Russia with the other.”
Microsoft CEO Satya Nadella speaks at the Axel Springer building in Berlin on Oct. 17, 2023. He received the annual Axel Springer Award.
Ben Kriemann | Getty Images
Among the thousands of Microsoft employees who lost their jobs in the cutbacks announced this week were 830 staffers in the company’s home state of Washington.
Nearly a dozen game design workers in the state were part of the layoffs, along with three audio designers, two mechanical engineers, one optical engineer and one lab technician, according to a document Microsoft submitted to Washington employment officials.
There were also five individual contributors and one manager at the Microsoft Research division in the cuts, as well as 10 lawyers and six hardware engineers, the document shows.
Microsoft announced plans on Wednesday to eliminate 9,000 jobs, as part of an effort to eliminate redundancy and to encourage employees to focus on more meaningful work by adopting new technologies, a person familiar with the matter told CNBC. The person asked not to be named while discussing private matters.
Scores of Microsoft salespeople and video game developers have since come forward on social media to announce their departure. In April, Microsoft said revenue from Xbox content and services grew 8%, trailing overall growth of 13%.
In sales, the company parted ways with 16 customer success account management staff members based in Washington, 28 in sales strategy enablement and another five in sales compensation. One Washington-based government affairs worker was also laid off.
Microsoft eliminated 17 jobs in cloud solution architecture in the state, according to the document. The company’s fastest revenue growth comes from Azure and other cloud services that customers buy based on usage.
CEO Satya Nadella has not publicly commented on the layoffs, and Microsoft didn’t immediately provide a comment about the cuts in Washington. On a conference call with analysts in April, Microsoft CFO Amy Hood said the company had a “focus on cost efficiencies” during the March quarter.
WATCH: Microsoft layoffs not performance-based, largely targeting middle managers
Technology
IPO market gets boost from Circle’s 500% surge, sparking optimism that drought may be ending
Jeremy Allaire, CEO and co-founder of Circle Internet Group, the issuer of one of the world’s biggest stablecoins, and Circle Internet Group co-founder Sean Neville react as they ring the opening bell, on the day of the company’s IPO, in New York City, U.S., June 5, 2025.
NYSE
For over three years, venture capital firms have been waiting for this moment.
Tech IPOs came to a virtual standstill in early 2022 due to soaring inflation and rising interest rates, while big acquisitions were mostly off the table as increased regulatory scrutiny in the U.S. and Europe turned away potential buyers.
Though it’s too soon to say those days are entirely in the past, the first half of 2025 showed signs of momentum, with June in particular producing much-needed returns for Silicon Valley’s startup financiers. In all, there were five tech IPOs last month, accelerating from a monthly average of two since January, according to data from CB Insights.
Highlighting that group was crypto company Circle, which more than doubled in its New York Stock Exchange debut on June 5, and is now up sixfold from its IPO price for a market cap of $42 billion. The stock got a big boost in mid-June after the Senate passed the GENIUS Act, which would establish a federal framework for U.S. dollar-pegged stablecoins.
Venture firms General Catalyst, Breyer Capital and Accel now own a combined $8 billion worth of Circle stock even after selling a fraction of their holdings in the offering. Silicon Valley stalwarts Greylock, Kleiner Perkins and Sequoia Capital are set to soon profit from Figma’s IPO, after the design software vendor filed its public prospectus on Tuesday. Since its $20 billion acquisition agreement with Adobe was scrapped in late 2023, Figma has been one of the most hotly anticipated IPOs in startup land.
It’s “refreshing and something that we’ve been waiting for for a long time,” said Eric Hippeau, managing partner at early-stage venture firm Lerer Hippeau, regarding the exit environment. “I’m not sure that we are confident that this can be a sustained trend yet, but it’s been very encouraging.”
Another positive sign for the industry the past couple months was the performance of artificial infrastructure provider CoreWeave, which went public in late March. The stock was relatively stagnant for its first month on the market but shot up 170% in May and another 47% in June.
For venture firms, long considered the lifeblood of risky tech startups, IPOs are essential in order to generate profits for the university endowments, foundations and pension funds that allocate a portion of their capital to the asset class. Without handsome returns, there’s little incentive for limited partners to put money into future funds.
After a record year in 2021, which saw 155 U.S. venture-backed IPOs raise $60.4 billion, according to data from University of Florida finance professor Jay Ritter, every year since has been relatively dismal. There were 13 such offerings in 2022, followed by 18 in 2023 and 30 last year, collectively raising $13.3 billion, Ritter’s data shows.
The slowdown followed the Federal Reserve’s aggressive rate-hiking campaign in 2022, meant to slow crippling inflation. As the lower-growth environment extended into years two and three, venture firms faced increasing pressure to return cash to investors.
‘Backlog of liquidity’
In its 2024 yearbook, the National Venture Capital Association said that even with a 34% increase in U.S. VC exit value last year to $98 billion, that number is 87% below the 2021 peak and less than half the average for the four years from 2017 through 2020. It’s a troubling dynamic for the 58,000 venture-backed companies that have raised a total of $947 billion from investors, according to the annual report, which is produced by the NVCA and PitchBook.
“This backlog of liquidity drought risks creating a ‘zombie company’ cohort — businesses generating operational cash flow but lacking credible exit prospects,” the report said.
Other than Circle, the latest crop of IPOs mostly consists of smaller and lesser-known brands. Health-tech companies Hinge Health and Omada Health are valued at about $3.5 billion and $1 billion, respectively. Etoro, an online trading platform, has a market cap of just over $5 billion. Online banking provider Chime Financial has a higher profile due largely to a years-long marketing blitz and is valued at close to $11.5 billion.
Meanwhile, the highest valued private companies like SpaceX, Stripe and Databricks remain on the sidelines, and AI highfliers OpenAI and Anthropic continue to raise massive amounts of cash with no intention of going public anytime soon.
Still, venture capitalists told CNBC that there are plenty of companies with the financial metrics to be public, and that more of them are readying for the process.
“The IPO market is starting to open and the VC world is cautiously optimistic,” said Rick Heitzmann, a partner at venture firm FirstMark in New York. “We are preparing companies for the next wave of public offerings.”
There are other ways to make money in the meantime. Secondary sales, a process that involves selling private shares to new investors, are on the rise, allowing early employees and investors to get some liquidity.
And then there’s what Mark Zuckerberg is doing, as he tries to position his company at the center of AI innovation and development.
Mark Zuckerberg, chief executive officer of Meta Platforms Inc., during the Meta Connect event on Wednesday, Sept. 25, 2024.
Bloomberg | Bloomberg | Getty Images
Last month, Meta announced a $14 billion bet on Scale AI, taking a 49% stake in the AI startup in exchange for poaching founder Alexandr Wang and a small group of his top engineers. The deal effectively bought out half of the stock owned by investors, leaving them with the opportunity to make money on the rest of their holdings, should a future acquisition or IPO take place.
The deal is a big win for Accel, which led Scale AI’s Series A round in 2017, and is poised to earn more than $2.5 billion in the transaction. Index Ventures led the Series B in 2018, and Peter Thiel’s Founders Fund led the Series C the following year at a valuation of over $1 billion.
Investors now hope the Federal Reserve will move toward a rate-cutting campaign, though the central bank hasn’t committed to one. There’s also ongoing optimism that regulators will make going public less burdensome. Last week, Reuters reported, citing sources familiar with the matter, that U.S. stock exchanges and the SEC have discussed loosening regulations to make IPOs more enticing.
Mike Bellin, who heads consulting firm PwC’s U.S. IPO practice, said he anticipates a diversity of IPOs across sectors in the second half of the year. According to data from PwC, pharma and fintech were among the most active sectors for deals through the end of May.
While the recent trend in IPO activity is an encouraging sign for investors, potential roadblocks remain.
Tariffs and geopolitical uncertainty delayed IPO plans from companies including Klarna and StubHub in April. Neither has provided an update on when they plan to debut.
FirstMark’s Heitzmann said the path forward is “not at all clear,” adding that he wants to see a strong quarter of economic stability and growth before confidently saying that the market is wide open.
Additionally, other than CoreWeave and Circle, recent tech IPOs haven’t had big pops. Hinge Health, Chime and eToro have seen relatively modest gains from their offer price, while Omada Health is down.
But virtually any activity beats what VCs were experiencing the last few years. Overall, Hippeau said recent IPO trends are generally encouraging.
“There’s starting to be kind of light at the end of the tunnel,” Hippeau said.
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