Nvidia's most advanced AI chip, developed for the Chinese market, has underperformed initially due to oversupply, leading to prices lower than Huawei's competing products.
This price drop highlights the challenges Nvidia faces in China, especially amidst US sanctions on AI chip exports and heightened competition. This casts a shadow over Nvidia's future in the Chinese market, which contributes 17% of its revenue for the fiscal year 2024.
The increasingly fierce competition in the Chinese market also serves as a warning signal to investors in American semiconductor design companies, despite Nvidia's stocks continuing to rise following a high revenue forecast on Wednesday.
Due to US sanctions, Nvidia launched three chips for the Chinese market at the end of last year to replace its most advanced semiconductor products that it could no longer export. Among these, the H20 is the most anticipated product, as it is Nvidia's most powerful offering in China. However, according to three supply chain sources interviewed by Reuters, the market is saturated with H20 chips, and demand is weak.
This has led to the H20 chip being sold at discounts more than 10% lower than Huawei's most powerful AI chip, the Ascend 910B, in some cases. Two of the three sources requested anonymity due to the sensitivity of the issue.
Analysts note that despite Nvidia's efforts to gain market share in this crucial market, the outlook remains increasingly uncertain.
According to a report by Chinese market research firm CCID Consulting, China's share in the global AI industry is expected to exceed 30% by 2035.
IG market analyst Hebe Chen stated, "Nvidia is balancing between maintaining the Chinese market and dealing with US-China tensions." She added, "Nvidia is clearly preparing for a worst-case long-term scenario."
In its first-quarter earnings report on Wednesday, Nvidia executives warned that due to sanctions, the company's business in China is "significantly below previous levels."
Chief Financial Officer Colette Kress said, "Due to new export control restrictions, our data center revenue in China has significantly decreased since October last year. We expect the Chinese market to remain highly competitive in the future."
Analysts believe that the performance of the H20 will be a key factor in its business in China, and the long-term outlook will depend on its competition with domestic tech giants like Huawei.
Huawei only began challenging Nvidia last year. According to sources, the Guangdong-based Huawei will significantly increase shipments of the Ascend 910B chip this year, which sources say outperforms the H20 on some key metrics.
Huawei did not immediately respond to requests for comment.
In the past six months, only five countries or state-affiliated buyers have shown interest in purchasing the H20 chip, while more than ten buyers have shown interest in Huawei's 910B during the same period. According to government procurement data reviewed by Reuters, these figures are not comprehensive and may not reflect the full market demand.
