US Regulation Circumventing China-Exclusive Chip Launch
Chinese Companies Show Little Interest Due to Minimal Performance Gap
Nvidia, the number one company in the artificial intelligence (AI) semiconductor market, is releasing AI chips exclusively for China by circumventing U.S. export regulations, but there is an analysis that it could lose the 'big spender' Chinese market in the long term.
On the 7th (local time), The Wall Street Journal (WSJ) reported that Nvidia launched AI chips targeting Chinese cloud companies, its largest customers, but Chinese companies showed no interest.
In October 2022, the U.S. Department of Commerce strengthened semiconductor export controls to China, including many of Nvidia's high-performance AI chips on the list of prohibited export items. Since then, Nvidia has supplied China with downgraded chips such as the H800 and A800 to bypass regulations, but after the U.S. government enacted additional export restrictions last year, export volumes worth $5 billion (about 6.5775 trillion KRW) for 2024 were canceled. Recently, Nvidia has continued to knock on the market door by releasing products for China, such as the RTX4090D, which has downgraded performance compared to the RTX4090.
Nvidia sold products worth more than $1 billion (about 10.3132 trillion KRW) to China last year. However, there is an analysis that this trend will not continue. WSJ reported, "Chinese cloud companies, one of Nvidia's largest customers, are not interested in purchasing Nvidia's low-power AI chips," and "Nvidia's performance downgrade reduces the performance gap with Chinese-made chips, making Chinese chips more attractive." WSJ also quoted sources saying, "Alibaba, Tencent, Baidu, and others are shifting their AI chip orders to domestic companies like Huawei or considering in-house development," and "In the long term, because U.S. regulators may further tighten performance limits in export controls, Chinese companies are not confident in Nvidia's supply capabilities."
Notably, WSJ reported that Huawei received orders for at least 5,000 Ascend 910B chips from major Chinese internet companies last year. This product is considered the closest alternative to Nvidia's high-performance AI chip A100, which is on the export prohibition list. Alibaba is also known to be developing its own AI chip, Huangguang. Startups are emerging that choose domestic products from the start instead of the market leader Nvidia.
China is one of the major markets accounting for about one-fifth of Nvidia's sales. Currently, with the global AI boom, Nvidia's chip supply cannot keep up with demand, so the immediate impact of export restrictions is not significant. However, WSJ predicted that geopolitical tensions will cause long-term sales losses in the key market of China.
Frank Kung, an analyst at market research firm TrendForce, forecasted, "Chinese cloud companies currently procure about 80% of their high-performance AI chips from Nvidia, but this ratio will drop to 50-60% within the next five years." Colette Kress, Nvidia's Chief Financial Officer (CFO), said, "Regulations banning GPU sales in China will cause the U.S. industry to lose opportunities to compete and lead in one of the world's largest markets in the long term."
Kevin Su, founder of hedge fund Interconnected Capital, said, "In the long term, U.S. regulations could act as pressure for China to develop its own technology," and "Once the stockpiling phase ends, Nvidia's China business will become a sacrificial lamb."
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