📷 REUTERS/Dado Ruvic/Illustration
According to people familiar with the situation, Nvidia’s (NVDA.O) most powerful AI chip, which it created specifically for the Chinese market, has not had the best of starts due to an abundance of supply, which has forced it to be priced lower than a rival chip from Huawei, a major player in the Chinese tech industry.
The declining prices highlight the difficulties that Nvidia’s China division is facing in light of US bans on the sale of AI chips and increased competition, raising doubts about the company’s future in a country that accounted for 17% of its revenue in the company’s fiscal year 2024.
Investors in the American semiconductor designer should exercise caution in light of the increasing competitive pressure in China, as the company’s shares continued their impressive upward trend after Wednesday’s impressive revenue prediction.
The industry leader in artificial intelligence (AI) chips, Nvidia, released three chips specifically designed for China in the latter part of 2018 after being banned from exporting its most sophisticated semiconductors due to U.S. sanctions.
Since the H20 is the most potent Nvidia product available in China, it is the chip that is being watched the most. However, three supply chain sources told Reuters that there is an abundance of the chip on the market, indicating lackluster demand.
Two of the three people told Reuters that this has resulted in H20 chips being sold in certain instances at a discount of more than 10% to Huawei’s Ascend 910B, the most potent AI chip from a Chinese business. The sources declined to be named because of the sensitive nature of the matter.
Nvidia was making a lot of effort to gain market share, which it cannot afford to lose, but analysts claimed the future is looking more and more bleak.
In 2035, China is expected to hold a larger worldwide share of the AI business than 30%, according to a report by the Chinese market research firm CCID Consulting.
According to Hebe Chen, an IG market analyst, “Nvidia is walking a fine line and working on a balancing act between maintaining the Chinese market and navigating U.S. tensions.” “Nvidia is definitely preparing for the worst in the long term.”
Senior executives from Nvidia said during the company’s first-quarter earnings call on Wednesday that the sanctions have “substantially” reduced the company’s operations in China.
“Our data center revenue in China is down significantly from the level prior to the imposition of the new export control restrictions in October,” stated Colette Kress, CFO. “We expect the market in China to remain very competitive going forward.”
The H20’s performance in China will be crucial to its business, according to analysts, and its long-term prospects will be determined by how it performs in comparison to Huawei, the country’s dominant tech company.
The Guangdong-based manufacturer, Huawei, only started to take on Nvidia last year. According to the sources, it will significantly increase the shipments of its Ascend 910B chip this year, which beats the H20 in some important parameters.
Huawei did not answer a request for comment right away.
Reuters’s checks on available government procurement data, which is not exhaustive and may not reflect the full extent of market demand, show that over a dozen buyers expressed interest in purchasing Huawei’s 910B during the same period, while just five state or state-affiliated buyers expressed interest in purchasing H20 chips.
Squeezing the margins
Nvidia’s H800 and A800 are banned in China due to US sanctions aimed at limiting China’s ability to become a technological powerhouse. Its other advanced product lines, such as H100 and B100, have also been prohibited.
Another big impediment to the development of Nvidia’s H20 chip in China has been Beijing’s instruction for enterprises to purchase Chinese processors, though two of the three individuals said such orders have decreased in recent months.
According to the sources, the H20 became widely available in China last month, with deliveries to clients arriving in just over a month.
Some of China’s internet behemoths have already placed orders, with Alibaba ordering over 30,000 H20 chips, according to two sources. Alibaba did not immediately reply to a request for comment.
According to sources, server distributors in China are selling the H20 for roughly 100,000 yuan per card and the eight-card server for between 1.1 million and 1.3 million yuan per server.
For example, wholesalers sell the Huawei 910B for more than 120,000 yuan for each card, while the eight-card server equivalent starts at 1.3-1.5 million yuan per server. According to the sources, costs for both the H20 and Huawei’s 910B can vary based on the volume of orders submitted.
According to Dylan Patel, founder of research firm SemiAnalysis, about a million H20 chips will be transported to China in the second half of 2024, forcing Nvidia to compete on pricing with Huawei.
“The H20 cost more to manufacture than an H100 due to its higher memory capacity,” Patel said, adding that it is being marketed for half the price of the H100, alluding to the powerful Nvidia processor prohibited from export to China in 2022.