Nvidia plans to make cheaper AI chips for China: Report

Nvidia’s Strategic Response to US Export Restrictions on AI Chips in China

Nvidia is developing a new, lower-cost artificial intelligence chip tailored for the Chinese market, a direct response to US export restrictions on its higher-end models. This strategic move aims to mitigate the significant impact of these restrictions on Nvidia’s substantial Chinese revenue stream, which accounted for 13% of its sales in the previous fiscal year.

The new chip, slated for mass production in June, will fall within the price range of $6,500 to $8,000. This is significantly lower than the $10,000 to $12,000 price point of the restricted H20 model, reflecting its reduced specifications and simpler manufacturing process. The lower price point is a calculated attempt to maintain market presence while adhering to US export limitations.

The US government’s April mandate requiring export licenses for the H20 chips specifically targeted China, citing concerns about potential use in Chinese supercomputers. This decision has severely impacted Nvidia’s market share in China, causing a decline from 95% before 2022 to 50% currently, according to CEO Jensen Huang. Nvidia’s spokesperson acknowledged the challenges, stating that without a new, approved design, they are effectively locked out of China’s substantial $50 billion data center market.

This represents Nvidia’s third attempt to create a China-compliant chip. The new design is engineered to meet the current US bandwidth limit of 1.7 terabytes per second. Despite the setbacks, Nvidia remains committed to the Chinese market, as evidenced by Huang’s statement on Taiwanese TV, promising continued efforts to optimize compliant products and serve Chinese customers.

This development comes ahead of Nvidia’s quarterly earnings report on May 28th. Analysts predict robust results, with expected revenue of $43.4 billion (a 66% year-over-year increase) and adjusted net income of $21.3 billion. Despite the loss of H20 sales in China, Oppenheimer analysts anticipate positive upside potential. The situation highlights the intricate geopolitical landscape impacting the AI chip industry and the strategic maneuvers employed by major players like Nvidia to navigate these complexities. The competitive landscape also includes Nvidia’s main rival, Huawei, which is preparing to launch its own AI chip, the Ascend 910D.