Nvidia, the U.S. chipmaking giant, is gearing up for the mass production of a new artificial intelligence (AI) chip, the H20, specifically designed for the Chinese market, in compliance with U.S. export rules. The launch, initially planned for November but delayed due to integration issues with server manufacturers, is now slated for the second quarter of 2024, as stated by sources familiar with the matter.
The H20 chip is the most powerful among three China-focused chips Nvidia has developed to meet restrictions announced in October. Despite the initial production volume being limited and primarily aimed at fulfilling orders for major customers, the launch marks a significant step in Nvidia's strategy to maintain its market presence in China amidst tightening U.S. export restrictions.
However, Nvidia faces challenges as Chinese companies express reluctance to purchase the downgraded H20 chip, exploring domestic alternatives instead. This shift is partly driven by concerns that the U.S. might further tighten restrictions. Baidu, a leading search engine in China, has reportedly ordered AI chips from Huawei Technologies, indicating a pivot away from Nvidia.
In response to the new U.S. rules, Nvidia also plans to release two other chips, the L20 and L2, though the company has yet to announce the sale of any of the three. Additionally, Nvidia introduced a modified version of an advanced gaming chip in late December, designed to comply with the new regulations.
The H20, L20, and L2 chips are crafted to incorporate most of Nvidia's latest AI features but with reduced computing power to align with the new rules. According to SemiAnalysis, these chips maintain significant capabilities despite the restrictions.
The situation is further complicated as some of China's largest cloud companies, including Alibaba Group, Tencent, Baidu, and TikTok owner ByteDance, indicate plans to order fewer chips from Nvidia. The American company's decision to downgrade its chips has narrowed the performance gap with Chinese-made alternatives, potentially prompting these firms to turn to local suppliers.
This development comes amid a broader U.S. effort to slow China's technological advancements through a series of export restrictions targeting the country's chip industry. These measures have prompted tech companies to prepare for reduced access to Nvidia's chips. Despite these challenges, China remains a crucial market for Nvidia, accounting for around 20% of the company's revenue and holding a dominant share of China's AI chip market.
As Nvidia navigates these complex geopolitical waters, the tech industry watches closely to see how the company's new China-specific AI chip and its broader strategy will unfold in this dynamic market. The success or failure of this endeavor will not only impact Nvidia's position in China but also reflect the broader tensions and shifts in the global tech landscape.
