China Pushes Tech Giants to Buy Local AI Chips Instead of Nvidia’s

The Chinese government is, in reality, encouraging its tech companies to purchase more locally-made AI chips, according to The Information. Major companies, such as Alibaba, Baidu, ByteDance, and Tencent, are cutting their spending on foreign-made chips in favor of local manufacturers, including Nvidia.

China’s new directive will be a big blow to Nvidia, as it is a huge market for the company. In recent months, the company has developed certain specialized products for China, among which the three new GPUs are named H20, L20, and L2. The Reuters news agency quoted two sources familiar with the matter, saying that the company was making chips to those products to comply with existing US sanctions.

For the fiscal year 2023, China’s contribution for the chipmaker data center chip revenue was 19%. Though, contribution rate was brought down by the export restrictions by the US. Nvidia CFO Colette Kress had said during a conference call in February that China revenue share had dropped to a “mid-single-digit percentage.”

In May 2023, the CEO of Nvidia, Jensen Huang, was quoted as saying in an interview with the Financial Times: “If China can’t buy from the United States, they’ll just build it themselves. So the US has to be careful. China is a very important market for the technology industry.”

He further added, “There is no replacement for the Chinese market. There is no other China, there is only one China.” The rule isn’t yet being rigidly implemented, The Information reported, noting that the target for Chinese tech firms was to procure an equal amount of AI chips that are both locally-made and made by foreign manufacturers for their latest data centers.

As for now, it isn’t clear if there would be a sanction for non-compliance, it added. The Information has not received responses from China’s National Development and Reforms Commissions, the Ministry of Industry and Information Technology, and the four tech firms. Nvidia declined to say anything.

The company’s decision reflects the hard situation facing corporations amid increasing tensions between the US and China. For instance, Apple has diversified its supply chains away from China. In April, Bloomberg reported that the company is also set to increase investments in India for iPhone production and has so far plowed in nearly $16 billion worth of investments for its Vietnamese suppliers.

Jay Pelosky, founding partner of TPW Advisory, placed the broader consequences of these moves into perspective: “We are rapidly approaching what we call a ‘two tech stack divide’ where in essence, each country, the US and China, are effectively walling off or ring fencing their tech stacks from each other,” he said.

In other words, China’s push for locally made AI chips is one other big development in the tech industry, marking ongoing geopolitical tensions and strategic moves companies have to make to navigate an incredibly challenging environment.

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