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May 24, 2024

Headline: Nvidia Reacts to Competitive Pressure in China by Slashing Prices Amid Huawei’s Chip Onslaught

In a strategic move to counter the competitive onslaught from Huawei’s chips, Nvidia has initiated a significant price reduction for its advanced AI chip designed specifically for the Chinese market. Sources familiar with the matter revealed that Nvidia’s latest endeavor faced a lukewarm reception, with an oversupply leading to pricing adjustments, positioning it below Huawei’s rival offerings.

This price adjustment underscores the hurdles Nvidia’s China business confronts amidst US sanctions on AI chip exports and heightened competition from domestic players. Notably, China stands as a pivotal market, contributing 17% to Nvidia’s revenue for fiscal 2024. The recent competitive pressures in China serve as a cautionary signal to investors, even as Nvidia’s shares surged following a promising revenue forecast earlier.

Introduced late last year, Nvidia’s trio of chips tailored for the Chinese market aimed to mitigate the impact of US sanctions preventing the export of its most advanced semiconductors. Among these, the H20 garnered significant attention as the most potent Nvidia product available in China. However, sources indicate an oversupply of the H20 chip in the market, signaling subdued demand and necessitating price adjustments.

Reports suggest that the H20 chips are being sold at over a 10% discount compared to Huawei’s Ascend 910B, which emerges as the most powerful AI chip from a Chinese tech giant. While Nvidia strives to gain traction in a market it cannot afford to relinquish, analysts remain cautious about the uncertain outlook.

The growing dominance of China in the global AI industry, projected to exceed 30% by 2035, adds complexity to Nvidia’s strategy. Analysts suggest that Nvidia is treading carefully amidst geopolitical tensions, balancing its presence in the Chinese market while navigating US restrictions.

During Nvidia’s recent earnings report, senior executives acknowledged a substantial decline in the company’s business in China post-sanctions imposition. The data center revenue in China witnessed a significant downturn, prompting anticipations of sustained competitiveness in the market.

The performance of the H20 chip stands as a crucial determinant for Nvidia’s prospects in China, with long-term success contingent on its ability to compete with indigenous tech giants like Huawei. Recent reports indicate Huawei’s plans to ramp up shipments of its Ascend 910B chip, which reportedly outperforms Nvidia’s H20 in key metrics.

The success of Nvidia’s H20 chip in China faces additional challenges, including US sanctions limiting the availability of other advanced product lines. Furthermore, Beijing’s directive for domestic chip procurement poses a significant obstacle, although recent reports suggest a relaxation of such orders in recent months.

Despite challenges, Nvidia’s H20 chip became widely accessible in China, with notable orders from tech giants like Alibaba, signaling some level of market acceptance. Server distributors in China are now retailing the H20 at revised prices, making it more competitive within the market landscape.

In response to competitive pressures and market dynamics, Nvidia’s pricing strategy reflects its commitment to maintaining relevance in China amidst escalating competition from domestic players like Huawei. However, the path forward remains uncertain as Nvidia navigates a complex landscape shaped by geopolitical tensions and evolving market demands.

Jhumpa Lahiri

Jhumpa Lahiri

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