Nvidia readies downgraded chips for China, but will anyone want to buy them?

Nvidia readies downgraded chips for China, but will anyone want to buy them?

Nvidia is caught between a rock and a hard place when it comes to China, banned from shipping its most capable products but discovering that the Chinese may not want to buy those it is allowed to sell.

The GPU giant is said to be preparing new products that will comply with the latest tough restrictions imposed on high-tech exports to China by the Biden administration late last year, but it may find that this is a pointless undertaking.

According to reports, Nvidia is firming up plans to start mass production of its H20 GPU in the second quarter of 2024. The chip, said to be the top performing model out of three GPUs designed for the Chinese market, was first disclosed in November following the official announcement of Washington’s updated export rules.

Those updated rules implement a new set of caps on performance density across a range of products, rather than focusing on the interconnect bandwidth, which previously allowed Nvidia to continue to sell products by dialing back performance in this area.

The company also started shipping the GeForce RTX 4090 GPU into the Chinese market again at the end of last year, in the form of the RTX 4090D. This has had its performance cut by about 11 percent, as The Register reported at the time.

Nvidia, however, may be facing a bigger problem than just some temporarily lost sales. According to the Wall Street Journal, customers in China are not so keen on its crippled products, and are starting to look more towards domestically manufactured rival silicon for accelerating AI processing.

Cloud operators in the Middle Kingdom such as Alibaba and Tencent have reportedly told Nvidia that they plan to purchase significantly fewer of its GPU products this year, now that a ban has been slapped on the hardware they were interested in.

The companies are instead exploring alternatives on offer closer to home from the likes of China’s own tech giant Huawei and others, as there is less of a performance gap between these and Nvidia’s downgraded chips, the WSJ said, citing sources familiar with the matter.

This standoff between the US and China over technology is turning into a nightmare for some of America’s big chip companies because a large fraction of their profits comes from sales to China. In Nvidia’s case, this is believed to be 20 to 25 percent of its datacenter revenue.

It was also widely predicted by many that Beijing’s reaction to being blocked from buying advanced US technology would be to simply ramp up development programs to accelerate the performance of its own chips, thus resulting in exactly the outcome that Washington’s restrictions were intended to prevent.

US chip companies were concerned enough that the chief executives of both Intel and Qualcomm visited Washington in the middle of last year to sound out the effect export controls were having on their businesses, although this was clearly unsuccessful in halting the updated restrictions.

Nvidia may also find its efforts to work around the export controls will be in vain. US Secretary of Commerce Gina Raimondo told a conference late last year that Washington would have to keep tightening restrictions to prevent China working out how to get around them.

“If you redesign a chip around a particular cut line that enables them to do AI, I’m going to control it the very next day,” she was quoted as saying at the time. “We cannot let China get these chips. Period.” ®

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