Nvidia is on course to sell $12 billion (€11.1 billion) worth of artificial intelligence chips in China this year despite US export controls that have throttled its business in one of the world’s biggest semiconductor markets.
The $3 trillion Silicon Valley group will over the coming months deliver more than one million of its new H20 chips, which are designed to fall outside of US restrictions on selling AI processors to Chinese customers, according to analyst forecasts.
That figure is almost twice as many as Huawei is expected to sell of its China-made rival product, Ascend 910B, according to estimates from SemiAnalysis, a chip consultancy.
Nvidia is the latest Silicon Valley company to find itself entangled in tensions between Washington and Beijing. The Biden administration wants to stem the flow of the world’s most powerful chips to China, fearing Beijing may use them to create more powerful AI systems with military applications.
The resulting shortage of AI chips has hit the ability of Chinese tech groups such as ByteDance, Tencent and Alibaba to compete with US-based OpenAI, Microsoft, Meta and Google in a technology that is reshaping the industry.
Each H20 chip costs between $12,000 and $13,000, suggesting that Nvidia is likely to generate upwards of $12 billion in sales. That would be more than the $10.3 billion revenue made from its entire China business – including selling graphics chips to PC gamers and other products – in the financial year ending in January 2024.
Nvidia declined to comment on the forecasts. Huawei did not respond to a request for comment.
Ever since the Biden administration first introduced restrictions on Nvidia’s ability to sell its most powerful AI chips in China in 2022, the US company has warned that its business would suffer as cloud computing providers and AI start-ups there turned to local alternatives such as Huawei.
“Our business in China is substantially lower than the levels of the past,” Jensen Huang, Nvidia’s chief executive, said during the company’s most recent earnings call in May. “And it’s a lot more competitive in China now, because of the limitations on our technology ... However, we continue to do our best to serve the customers in the markets there.”
Colette Kress, Nvidia’s finance chief, said on the same call that revenue from its data centre segment – which includes AI chips – in China in the latest quarter was “down significantly from the level prior to the imposition of the new export control restrictions in October”.
As recently as 2021, before the US began imposing export controls, China accounted for more than a quarter of Nvidia’s total revenues. Even if the H20 chip sells as well as analysts expect, China could be closer to 10 per cent of sales this year. But that also reflects the huge growth that Nvidia is seeing from US tech companies as they build out ever-larger AI systems.
Although Nvidia’s sales in China have been lower ahead of the roll-out of the new H20 this spring, analysts at both Morgan Stanley and SemiAnalysis say that the chip is now being shipped in volume and is proving popular with Chinese customers, despite its downgraded performance compared with the chips Nvidia can sell in the US.
“Buyers report positive feedback on the potential competitiveness of H20 clusters,” Morgan Stanley wrote in a research note to clients this week, pointing to “strong China demand”.
Dylan Patel, of SemiAnalysis, said that while the H20′s capabilities “on paper” were below that of Huawei’s 910B, in practice Nvidia’s chip was “a decent bit ahead”, thanks to superior memory performance.
He estimated that Huawei would sell about 550,000 910B chips over the same period, as the Shenzhen-based company and its manufacturing partners struggle to produce the complex processors in high enough volumes to meet demand.
Most Chinese AI companies have also built their AI models on top of Nvidia’s ecosystem and software. Switching over to Huawei’s infrastructure would be time-consuming and costly.
The Biden administration introduced restrictions on Nvidia’s ability to sell its most powerful chips, including the A100 and H100, to China in October, 2022. It further tightened those controls late last year to exclude Nvidia’s newer chips too. By November, Nvidia had started marketing a new set of chips adapted for China, of which the H20 is the most powerful.
Including chips for PC gamers, data centres and other customers, China represented about 9 per cent of Nvidia’s total revenues in the most recent quarter, ending in April, down from 22 per cent in the same period a year earlier. However, overall revenues from China, including Hong Kong, still increased during that time, growing more than 50 per cent year on year to $2.5 billion. – Copyright The Financial Times
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