Nvidia’s most advanced artificial intelligence chip for the Chinese market got off to a weak start as a supply glut led to it being priced below a rival chip from Chinese tech giant Huawei, Reuters quoted sources familiar with the matter as saying.
Experts say the price drop underscores the challenges facing Nvidia’s China business due to US sanctions on AI chip exports and increased competition, casting a shadow over the company’s future in the Chinese market, which accounts for 17 per cent of its fiscal 2024 revenue.
Rising competitive pressure in China is also signalling caution for investors in the US semiconductor designer.
Nvidia, which dominates the market for artificial intelligence chips, introduced three chips designed specifically for China late last year after US sanctions prevented it from exporting its most advanced semiconductors.
Of those chips, the H20 is the most closely watched as it is the most powerful Nvidia product sold in China, but three supply chain sources told Reuters there was ample supply of chips on the market, indicating weak demand.
H20 chips are in some cases being sold at a discount of more than 10 per cent to a Chinese company’s most powerful AI chip, the Huawei Ascend 910B, two of the three sources told Reuters, requesting anonymity due to the sensitivity of the issue.
Analysts say Nvidia is scrambling to grab share in a market it cannot afford to lose, but the outlook is increasingly uncertain.
China’s global share of the artificial intelligence industry is expected to exceed 30 per cent by 2035, according to a report by Chinese research firm CCID Consulting.
“Nvidia is walking a fine line, trying to strike a balance between protecting the Chinese market and managing tensions in the US,” Hebe Chen, a market analyst at IG, told Reuters: “Nvidia is definitely preparing for the worst in the long run.”
During Nvidia’s first-quarter earnings call on Wednesday, executives warned that the company’s business in China was “significantly” lower than in the past because of the sanctions.
CFO Colette Kress said: “Our data centre revenue in China is significantly lower than prior to the implementation of new export control restrictions in October. We expect the market in China to remain highly competitive going forward”.
Analysts said H20’s performance will be a key factor for its business in China, while long-term prospects will depend on how it competes with domestic technology giant Huawei.
Huawei only started challenging Nvidia last year, and the Guangdong-based company will significantly increase shipments of its Ascend 910B chip this year, which sources say has outperformed the H20 on some key metrics.
In the past six months, only five state or state-affiliated buyers have expressed interest in buying H20 chips, while more than a dozen have shown interest in Huawei’s 910B over the same period, according to a Reuters review of available government procurement data, which is not comprehensive and may not reflect the full extent of market demand.
