Nvidia Reduces AI Chip Prices Amidst Huawei's China Discount War

Nvidia's situation in China is reminiscent of Apple and Tesla, who have been embroiled in pricing wars with Chinese firms. The current clash in the semiconductor industry pits Chinese tech behemoth Huawei against Nvidia's AI chip monopoly. This provides a clear picture of why Huawei is vehemently opposed by Washington's power brokers. Just a few days following Nvidia's impressive earnings report, Reuters released a new report indicating that the company's China division was under pressure due to an "overabundance of supply forcing it to price below a rival chip" manufactured by Huawei. The falling prices of AI chips in Nvidia's China division add to the difficulties created by US sanctions on AI chip exports. Increasing competition from Huawei raises questions about Nvidia's future in a market that accounts for approximately 17% of its revenue. This escalating competition in China is a warning to investors, especially after a strong earnings report on Wednesday.

Nvidia Lowers China Prices in Huawei Chip Battle

In response to US sanctions prohibiting the export of most of its advanced semiconductors, Nvidia, a leader in the AI chip market, launched three chips specifically for the Chinese market last year. According to sources, Nvidia's H20 for the Chinese market has seen "weak demand," with an "overabundance of the chip in the market." They noted that the H20 chips are being offered at a 10% discount compared to Huawei's powerful Ascend 910B. During Nvidia's first-quarter earnings, senior executives cautioned that its China division had significantly weakened due to US sanctions.

China's Data Center Revenue Declines

"Our data center revenue in China has significantly decreased from the level prior to the implementation of the new export control restrictions in October," CFO Colette Kress informed investors, adding, "We anticipate the market in China to remain highly competitive in the future." Another significant margin squeeze for Nvidia is the recent suggestion by sources that Beijing has encouraged companies to only purchase Chinese chips. "Nvidia is delicately balancing between maintaining the Chinese market and navigating US tensions," commented Hebe Chen, a market analyst at IG, adding, "Nvidia is certainly preparing for the worst in the long term." Dylan Patel, founder of the research group SemiAnalysis, explained that Nvidia must compete with Huawei on pricing or risk inventory accumulation, with over a million H20 chips expected to be shipped to China in the second half of 2024. The AI chip price war, which is similar to the EV price war or smartphone price war between US and Chinese companies, is set to escalate. This indicates a more challenging environment for Nvidia to maintain high margins.

Final Thoughts

The escalating price war in China's AI chip market is a testament to the growing competition in the tech industry. With the US and China at odds, companies like Nvidia are forced to navigate a complex landscape of political and economic challenges. How will this affect the global tech industry in the long run? We'd love to hear your thoughts. Share this article with your friends and join us for the Daily Briefing every day at 6pm.