US-based Nvidia has started offering discount in price of advanced AI chip developed for the Chinese market as it is not able to compete with chip supplied by tech giant Huawei, Reuters news report said.
The decline in prices highlight the significant challenges Nvidia faces in China due to U.S. sanctions on AI chip exports and increasing competition. Nvidia will be in major trouble because China has contributed 17 percent to its fiscal 2024 revenue.
Nvidia, which dominates the AI chip market, introduced three chips tailored for China last year after U.S. sanctions blocked it from exporting its most advanced semiconductors.
The H20 chip, Nvidia’s most powerful product sold in China, is in abundant supply, signaling weak demand. This surplus has led to H20 chips being sold at more than a 10 percent discount compared to Huawei’s Ascend 910B, the most powerful AI chip from a Chinese company.
Nvidia is striving to maintain its market share in China amidst these challenges. The AI industry in China is projected to account for over 30 percent of the global market by 2035, according to a report by Chinese market research firm CCID Consulting.
“Nvidia is walking a fine line and working on a balancing act between maintaining the Chinese market and navigating U.S. tensions,” said Hebe Chen, a market analyst at IG. “Nvidia is definitely preparing for the worst in the long term.”
During Nvidia’s first-quarter earnings call on Wednesday, executives warned that business in China has significantly declined due to sanctions. “Our data center revenue in China is down significantly from the level prior to the imposition of the new export control restrictions in October,” said CFO Colette Kress. “We expect the market in China to remain very competitive going forward.”
Analysts say the H20’s performance will be critical for Nvidia’s business in China, while longer-term success will depend on its competition with Huawei. Huawei plans to increase shipments of its Ascend 910B chip this year, which outperforms the H20 in some key metrics.
In the past six months, fewer state or state-affiliated buyers have shown interest in purchasing H20 chips compared to Huawei’s 910B, according to government procurement data.
Nvidia’s H800 and A800 chips are banned in China due to U.S. sanctions, along with other advanced products like the H100 and B100. Additionally, Beijing’s directive for companies to buy Chinese chips has been a hurdle, though sources note that these orders have eased recently.
The H20 became widely available in China last month, with deliveries to clients in just over a month. Some Chinese tech giants, including Alibaba, have placed orders for the H20 chip. Alibaba did not immediately respond to a request for comment.
Server distributors in China are selling the H20 at around 100,000 yuan per card, with eight-card servers priced between 1.1 million and 1.3 million yuan. In contrast, Huawei’s 910B is sold at over 120,000 yuan per card, with eight-card servers starting at 1.3 million to 1.5 million yuan.
Dylan Patel, founder of research group SemiAnalysis, noted that nearly a million H20 chips will be shipped to China in the second half of 2024, forcing Nvidia to compete with Huawei on pricing. “The H20 costs more to manufacture than an H100 due to its higher memory capacity,” Patel said, adding that it is being sold at half the price of the H100, resulting in a significant decrease in margin.
