Key Points
- Nvidia is expected to sell over $12 billion worth of AI chips in China this year, despite US export controls.
- This success comes from their new H20 chip, designed to comply with restrictions.
- Sales of H20 chips are projected to be nearly double those of Huawei’s competing product.
- US restrictions aimed to limit China’s access to powerful AI technology.
- The H20 offers a balance between complying with restrictions and remaining competitive.
- While overall China sales are down for Nvidia, H20 sales are strong.
- Chinese tech companies favour Nvidia’s ecosystem and software, making switching difficult.
Nvidia is projected to achieve $12 billion in sales of artificial intelligence (AI) chips in China this year, overcoming significant challenges posed by US export controls.
The $3 trillion Silicon Valley giant is set to deliver over one million of its new H20 chips to the Chinese market, according to industry analyst forecasts.
This figure is nearly double the estimated sales of Huawei’s Ascend 910B chips, according to SemiAnalysis, a chip consultancy firm.
Navigating US Export Controls
Despite the Biden administration’s restrictions aimed at preventing the export of advanced AI chips to China due to national security concerns, Nvidia has found a way to maintain its presence in one of the world’s largest semiconductor markets.
The H20 chip, specifically designed to circumvent these restrictions, is set to significantly boost Nvidia’s sales in China.
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Each H20 chip is priced between $12,000 and $13,000, indicating potential revenue of over $12 billion from this product alone. This would surpass the $10.3 billion in revenue Nvidia made from its entire China business in the fiscal year ending January 2024, according to Financial Times.
Impact on Chinese Tech Companies
The shortage of AI chips has hindered the ability of Chinese tech giants such as ByteDance, Tencent, and Alibaba to compete with US companies like OpenAI, Microsoft, Meta, and Google. The Biden administration’s restrictions, introduced in October 2022 and tightened further last year, aim to prevent China from developing advanced AI systems with potential military applications.
Nvidia’s Chief Executive, Jensen Huang, acknowledged the challenges during a recent earnings call, stating that their business in China is “substantially lower than the levels of the past.” However, he emphasised that Nvidia continues to strive to serve its customers in China despite these limitations.
Competitive Landscape
Nvidia’s H20 chips, while slightly downgraded compared to their counterparts sold in the US, are still highly competitive in the Chinese market.
Analysts at Morgan Stanley and SemiAnalysis report strong demand for the H20 chips, with positive feedback on their performance despite some limitations.
Dylan Patel of SemiAnalysis noted that while the H20’s specifications are inferior to Huawei’s 910B on paper, Nvidia’s chip performs better in practice due to superior memory performance.
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Huawei, on the other hand, is expected to sell about 550,000 of its 910B chips, struggling to meet demand due to production challenges. Most Chinese AI companies have built their models on Nvidia’s ecosystem, making it costly and time-consuming to switch to Huawei’s infrastructure.
Market Dynamics
China accounted for more than a quarter of Nvidia’s total revenues as recently as 2021. However, due to export controls, this figure has dropped to about 9 per cent in the most recent quarter ending in April, down from 22 per cent a year earlier.
Despite this decline, Nvidia’s overall revenues from China, including Hong Kong, have increased by more than 50 per cent year-on-year, reaching $2.5 billion.
Nvidia’s strategic introduction of the H20 chip demonstrates its resilience and adaptability in the face of stringent US export controls. While the company faces significant challenges in maintaining its market share in China, the strong demand for its AI chips underscores the continued importance of the Chinese market to Nvidia’s overall business strategy.
