Nvidia must lower prices in AI chip war with Huawei

Nvidia in China imitates Apple and Tesla, which have engaged in a price war with Chinese companies. In this case the battle is with Chinese tech giant Huawei, which is challenging Nvidia’s technological monopoly on AI chips. This should be enough to understand why Washington is passionately opposed to Huawei.

Just days after Nvidia’s strong earnings report, a new report from Reuters revealed that the company’s China unit has come under pressure from “a competing offering that forced it to be priced lower than a rival chip” produced by Huawei.

Lower AI chip prices at Nvidia’s Chinese unit exacerbate challenges posed by U.S. sanctions on AI chip exports. Growing competition from Huawei puts the company’s future in doubt in a market that contributes about 17% of its revenue.

Intensifying competition in China is a sign of caution for investors following Wednesday’s strong earnings report. Here are the records achieved by Nvidia

In response to U.S. sanctions that bar the export of most of its advanced semiconductors, Nvidia, which leads the AI ​​chip market, introduced three chips specifically for China last year.

The sources told Reuters that Nvidia’s H20 chip for the Chinese market has seen “weak demand”, adding that there is “plentiful supply of chips in the market”. They said the H20 chips are being offered at a 10% discount over Huawei’s powerful Ascend 910B.

During Nvidia’s first-quarter earnings, executives warned that its China unit has weakened “substantially” due to U.S. sanctions.

“Our data center revenue in China has declined significantly from the level prior to the imposition of the new export control restrictions in October,” CFO Colette Kress told investors, adding: “We expect the Chinese market remain very competitive in the future.”

Another major margin squeeze for Nvidia is that sources recently noted that Beijing has been urging companies to buy only Chinese chips.

“Nvidia is walking a fine line and working to find a balance between maintaining the China market and managing tensions in the U.S.,” said Hebe Chen, market analyst at IG, adding: “Nvidia is definitely preparing to the worst in the long term.”

With more than a million H20 chips expected to ship to China in the second half of 2024, Dylan Patel, founder of research group SemiAnalysis, explained that Nvidia must compete with Huawei on pricing or risk stockpiling.

The AI ​​chip price war, similar to the EV or smartphone price war between US and Chinese companies, will only intensify. All of this suggests a tougher environment for Nvidia to keep margins high. At the same time, however, Chinese customers will have the opportunity to improve their margins.

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