Nvidia is gearing up to compete with Huawei in the rapidly growing AI chip market in China. This new initiative represents a strategic risk for Nvidia as it makes its third attempt to comply with regulations while striving to maintain its market presence against increasing domestic competition. Despite geopolitical challenges from the U.S., Nvidia is committed to not relinquishing its foothold in China.
The company plans to launch a new, more affordable processor based on its Blackwell architecture. This design aims to adhere to export restrictions while going up against advanced local options from competitors like Huawei. Reports indicate that the price for Nvidia’s new chip will be between $6,500 and $8,000, a notable decrease from the now-banned H20 model, which sold for $10,000 to $12,000.
Production is expected to begin in June, highlighting the urgency of this effort. However, this cost reduction comes with compromises. The new processor will utilize the RTX Pro 6000D foundation along with standard GDDR7 memory, foregoing the high-bandwidth memory and advanced packaging technologies previously employed in premium models.
Following a prohibition on H20 sales, Nvidia faced a $5.5 billion writedown due to unsold inventory and commitments in China, as its attempts to adapt the H20 for the Chinese market proved impractical. Meanwhile, Huawei’s rise as a formidable competitor has reshaped China’s AI chip landscape. Its Ascend processors are gaining traction among major technology firms, establishing Huawei as a key player in this sector.
The challenges for Nvidia are further compounded by pricing pressures; reports suggest H20 chips have been sold at discounts exceeding 10% compared to Huawei’s offerings, leading to a significant decrease in Nvidia’s market share. The stakes are exceptionally high, with Huang estimating China’s AI chip market potential at $50 billion, and Nvidia recording over $17 billion in sales in China during 2024. To tackle these challenges effectively, Nvidia has plans for a second Blackwell processor variant aimed at the Chinese market, scheduled for production in September.
Uncertainty surrounds Nvidia’s prospects as it navigates these waters. The effectiveness of its reduced hardware in a highly competitive environment raises concerns, especially as local options continue to advance rapidly. Huang warns that China is quickly closing the gap in AI capabilities, driven by extensive government support for domestic semiconductor development.
This reality presents daunting questions about Nvidia’s long-term viability in the Chinese market.