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Nvidia’s achilles heel: China the speed breaker in chipmaker’s rapid growth

The Street cheered Nvidia’s Q4 results and Q1 guidance, taking the AI chipmaker’s market capitalisation to $2 trillion, but the company’s CFO Colette Kress noted in an earnings call that its data centre revenue significantly fell in one particular geography — China.

Nvidia’s fiscal fourth quarter revenue more than tripled on-year to $22.1 billion, with the data centre business revenue quadrupling to $18.4 billion. For the full year, the data centre revenue more than tripled from the previous year to $47.5 billion.

However, the Chinese market saw a decline in contribution to data centre revenue due to the U.S. government export control regulations imposed in October 2023. “China represented a mid-single-digit percentage of our data center revenue in Q4. And we expect it to stay in a similar range in the first quarter,” Kress said.

What is the US regulation restricting Nvidia’s exports to China?
In October 2023, the US administration announced plans to halt shipments to China of more advanced artificial intelligence chips designed by Nvidia and other manufacturers. The rationale is to prevent China from receiving cutting-edge U.S. technologies to strengthen its military, said Reuters.

Prior to this, Nvidia was exporting its “leading-edge A100 and H100 chips” to China, which have built-in infrastructure for training AI models and algorithms.

How Nvidia responded to US restrictions on exports to China
Kress said on the earnings call that Nvidia immediately stopped exporting the device after the government regulations. Although the company has not received a licence from the U.S. government to ship restricted products to China, they have started shipping alternatives that don’t require a licence for the Chinese market.

“China represented a mid-single-digit percentage of our data center revenue in Q4. And we expect it to stay in a similar range in the first quarter,” she added.

Nvidia’s China competitor: Huawei
Another challenge for Nvidia has been from China-based semiconductor maker Huawei. In a filing with the SEC, Nvidia highlighted that China’s Huawei was a major competitor in supplying chips designed for artificial intelligence, such as graphics processing units (GPUs), central processing units (CPUs), and networking chips. With the growth in the AI segment across the world, challenges from Huawei could be a pain point for the company.

Huawei’s Ascend 910B chip competes with Nvidia’s A100 chip. Additionally, Huawei is also designing its hardware and software to improve AI computing. According to Reuters, Huawei continues to be a challenge for the company in China. In November 2023, Reuters reported that AI firm Baidu had ordered artificial intelligence chips from Huawei ahead of the US restriction announcement on exports of chips to China. Moneycontrol

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