Nvidia's latest AI chip, developed for the Chinese market, has experienced a sluggish start, with an oversupply leading to prices falling below those of Huawei’s competing chip, according to industry sources. This pricing pressure reflects the difficulties Nvidia faces in China due to U.S. sanctions on AI chip exports and rising competition, raising concerns about its future in a market that accounted for 17% of its revenue in fiscal 2024.
Nvidia introduced three new AI chips for China late last year following U.S. export restrictions on its most advanced semiconductors. Among these, the H20 chip, Nvidia’s most advanced product available in China, has struggled with weak demand, leading to an oversupply. Sources indicate that the H20 is being sold at over a 10% discount compared to Huawei's Ascend 910B, Huawei's top AI chip.
Despite Nvidia's efforts to capture a significant share of the Chinese AI market, the outlook remains uncertain. Analysts point out that maintaining competitiveness in China is crucial for Nvidia, especially as the AI industry in China is expected to represent more than 30% of the global market by 2035, according to 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."
Nvidia's first-quarter earnings highlighted the challenges, with senior executives noting a substantial decline in their China business due to the sanctions. CFO Colette Kress stated, "Our data centre revenue in China is down significantly from the level prior to the imposition of the new export control restrictions in October. We expect the market in China to remain very competitive going forward."
The H20's performance will be pivotal for Nvidia’s success in China, particularly as it faces growing competition from Huawei. Sources report that Huawei plans to significantly increase shipments of its Ascend 910B chip, which outperforms the H20 in certain key metrics.
Over the past six months, interest in purchasing H20 chips has been limited, with only a few state or state-affiliated buyers showing interest compared to a larger number for Huawei's 910B, based on available government procurement data.
The pricing battle is another significant challenge. Server distributors in China are selling the H20 at around 100,000 yuan per card and eight-card servers between 1.1 million to 1.3 million yuan. In contrast, Huawei’s 910B is priced above 120,000 yuan per card, with eight-card servers starting at 1.3 million to 1.5 million yuan. Prices for both chips can vary based on order sizes.
Dylan Patel, founder of SemiAnalysis, noted that close to a million H20 chips are expected to be shipped to China in the latter half of 2024. He highlighted that the H20 costs more to manufacture than the H100 due to its higher memory capacity but is being sold at half the price of the H100, indicating a significant margin squeeze for Nvidia.
As Nvidia navigates these challenges, the company must strategize effectively to maintain its foothold in the competitive Chinese AI market.
