Nvidia Faces Challenges in China: Environmental Regulations and Potential Chip Shortages Threaten AI Market Dominance

Nvidia's China sales face threat from Beijing's environmental curbs

Beijing has introduced energy efficiency rules for the use of advanced chips that would prevent Chinese companies from buying Nvidia's best-selling processors in the country if implemented strictly. The National Development and Reform Commission, China's top economic planner, is advising Chinese groups to use chips that meet stringent requirements in new data centres and expansion of existing facilities, according to documents reviewed and analysed by Financial Times. Nvidia's H20 chip -- less powerful than its top-range graphics processing units but tailored to meet Washington's export controls -- currently fails to satisfy the commission's new rules, according to the documents. For several months, the Chinese regulator has quietly discouraged the country's tech giants such as Alibaba, ByteDance and Tencent from purchasing H20 chips, said two people with knowledge of the matter. However, the rules have not been enforced strictly and are yet to dent China sales of H20 chips, which remain in strong demand, the people added. But the implications are stark if the commission decides to enforce the ban more tightly, creating a threat to Nvidia's $17bn-a-year business in the country. As China rushes to build more data centres, the US chipmaker risks losing orders to domestic rivals such as Huawei, whose offerings better align with Beijing's green agenda. In a bid to smooth tensions, Nvidia is seeking to arrange a sit-down meeting in the coming months between its senior executives and commission chair Zheng Shanjie, according to one person briefed on the plans. The NDRC's restrictions, which were introduced last year but not previously reported, came amid growing US-China trade tensions as the nations seek to race each other in the development of advanced artificial intelligence. Beijing has pushed local companies to be less reliant on the products of foreign groups such as Nvidia, which makes the graphics processing units crucial to developing AI models. Since such curbs apply only to data centres being built, some companies work around them by swapping out old chips for H20s in their existing data centres, said people familiar with the matter. Non-compliance could trigger on-site inspections and subsequent fines, an issue most Chinese companies are keen to avoid, said one of the people. To deal with the threat, Nvidia has prepared a solution to make adjustments to H20 chips to meet the NDRC requirements, said one of the people. But such technical changes would reduce the chip's efficiency and hurt its competitiveness in the Chinese market. The commission's stance sends a jittery signal about Beijing's posture towards Nvidia, the US chip titan navigating a high-stakes technological rivalry between Washington and Beijing. The H20 chip is Nvidia's flagship offering in China and was approved for sale after the US tightened export controls in October 2023. Those curbs bar Nvidia from shipping its most advanced chips to China over fears they could bolster the country's military prowess. Tech powerhouses from Alibaba to Tencent increased their orders for H20 chips aggressively this year after DeepSeek's launch of its efficient reasoning model led to an AI boom in the country, said one of the people with knowledge of the matter. The surge in orders also comes amid expectations of further curbs on Nvidia's chip sales to China. Bloomberg reported in January that Washington was exploring additional restrictions that might cover the H20 chip. Nvidia has increasingly been caught in the crosshairs of Chinese regulators. The State Administration for Market Regulation launched an antitrust probe in December, digging into whether Nvidia pulled back from chip sales to Chinese clients even before the US export ban kicked in late 2022, said a person with knowledge of the probe. China is Nvidia's fourth-largest market, with a revenue base of $17.1bn, making up 13 per cent of its total sales, according to its annual report for fiscal year 2025. "Our products provide superb energy efficiency and value in every market we serve," Nvidia said in a statement. "As technology moves rapidly, export control policy should be adjusted to allow US firms to offer the most energy efficient products possible, while still achieving the Administration's national security goals." Intel's HL328 and HL388 chips also fail to comply with the NDRC's environmental requirements, though the potential impact is likely to be small owing to their limited sales in China, according to people with knowledge of the measures.

Exclusive: China's H3C warns of Nvidia AI chip shortage amid surging demand

BEIJING, March 27 (Reuters) - One of China's largest server makers, H3C, has flagged potential shortages of Nvidia's H20 chip, the most advanced AI processor legally available domestically under U.S. export controls, in a client notice seen by Reuters. The potential supply crunch could create obstacles for China's artificial intelligence ambitions at a time when its tech firms are aggressively expanding their investments in AI. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted. Geopolitical tension that is roiling global trade and supply of key materials was responsible for the uncertainty, it added, saying new shipments were expected by mid-April this year. H3C and Nvidia did not immediately respond to Reuters' requests for comment. Demand for H20 chips has surged in recent months as companies rush to adopt Chinese AI startup DeepSeek's cost-effective AI models. Tencent (0700.HK), opens new tab, Alibaba (9988.HK), opens new tab and ByteDance have significantly increased orders of the H20 since the Chinese AI startup burst into the global public consciousness since January, Reuters reported last month. The Chinese server maker said supply plans beyond April 20 also face uncertainties from raw material policy changes, shipping disruptions, and production challenges. In the notice, H3C said it would distribute incoming H20 chips on the basis of a profit-first principle, prioritising stable, long-term customers with higher profit margins on their orders. H20 processors are currently scarce in the Chinese market, said an industry source, who distributes AI servers including those that make use of H20 chips. "We were told the chips would be available, but when it came time to actually purchase them, we were informed they had already been sold at higher prices," added the source, who sought anonymity given the information is private. U.S. officials were considering curbs on sales of H20 chips to China, Reuters reported in January. H3C is a major OEM partner for Nvidia's AI chips in China, alongside others such as Inspur, Lenovo and Huawei's spin-off x86 server unit, xFusion. The primary chip Nvidia is legally permitted to sell in China, the H20 was launched after the latest round of U.S. export restrictions took effect in October 2023. Washington has banned exports of Nvidia's most advanced chips to China since 2022, concerned that its rival could use advanced technologies to build up its military capabilities. Analysts estimate Nvidia shipped about 1 million H20 units in 2024, generating revenue of more than $12 billion for the company. Huawei and Cambricon offer domestic alternatives to the H20. Reporting by Liam Mo, Che Pan, and Fanny Potkin and Brenda Goh; Editing by Clarence Fernandez Our Standards: The Thomson Reuters Trust Principles., opens new tab Suggested Topics:Artificial Intelligence

Here are the chips that Nvidia can sell to China

After the U.S. placed chip-export controls on China in October 2022 to curb the country's technological advances, U.S.-based chipmaker Nvidia (NVDA) designed less-powerful versions of its artificial intelligence chips to continue its presence in the Chinese market while complying with the rules. Nvidia's most advanced A100 and H100 chips were blocked under the restrictions, leading it to develop the reduced-capability A800 and H800 chips. Chinese AI startup DeepSeek used the H800s to train and develop its AI models that rattled Silicon Valley and Wall Street earlier this year. However, under updated chip-export controls introduced in October 2023, those graphics processing units, or GPUs, were also banned, prompting the company to develop three more compliant chips. Now, concerns are mounting over whether Nvidia will be able to sell these specially-designed chips for much longer, as trade tensions between the U.S. and China rise. China and Hong Kong are the chipmaker's fourth-largest market, representing about 13% of its annual revenue -- or $17.1 billion -- for fiscal year 2025, according to Nvidia's Form 10-K. Earlier this week, the Trump administration announced new U.S. trade restrictions against dozens of Chinese tech firms, citing national security and foreign policy concerns -- a continuation of the years long effort to maintain the U.S. lead in chips and AI.

A Nvidia chip shortage is coming, warns major Chinese server maker

One of China's largest server makers, H3C, has flagged potential shortages of Nvidia's H20 chip, the most advanced AI processor legally available domestically under U.S. export controls, in a client notice seen by Reuters. The potential supply crunch could create obstacles for China's artificial intelligence ambitions at a time when its tech firms are aggressively expanding their investments in AI. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted. Geopolitical tension that is roiling global trade and supply of key materials was responsible for the uncertainty, it added, saying new shipments were expected by mid-April this year. After publication, a Nvidia spokesperson said the company declined to comment. In a statement to Reuters following publication, H3C said "after verification, neither the company nor any of its departments have issued this notice or its related content."

China's H3C warns of Nvidia AI chip shortage amid surging demand

Demand for H20 chips has surged in recent months as companies rush to adopt Chinese AI startup DeepSeek's cost-effective AI models. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted.One of China's largest server makers, H3C, has flagged potential shortages of Nvidia's H20 chip, the most advanced AI processor legally available domestically under U.S. export controls, in a client notice seen by Reuters. The potential supply crunch could create obstacles for China's artificial intelligence ambitions at a time when its tech firms are aggressively expanding their investments in AI. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted. Geopolitical tension that is roiling global trade and supply of key materials was responsible for the uncertainty, it added, saying new shipments were expected by mid-April this year. H3C and Nvidia did not immediately respond to Reuters' requests for comment. Demand for H20 chips has surged in recent months as companies rush to adopt Chinese AI startup DeepSeek's cost-effective AI models. Tencent, Alibaba and ByteDance have significantly increased orders of the H20 since the Chinese AI startup burst into the global public consciousness since January, Reuters reported last month. The Chinese server maker said supply plans beyond April 20 also face uncertainties from raw material policy changes, shipping disruptions, and production challenges. In the notice, H3C said it would distribute incoming H20 chips on the basis of a profit-first principle, prioritising stable, long-term customers with higher profit margins on their orders. H20 processors are currently scarce in the Chinese market, said an industry source, who distributes AI servers including those that make use of H20 chips. "We were told the chips would be available, but when it came time to actually purchase them, we were informed they had already been sold at higher prices," added the source, who sought anonymity given the information is private. U.S. officials were considering curbs on sales of H20 chips to China, Reuters reported in January. H3C is a major OEM partner for Nvidia's AI chips in China, alongside others such as Inspur, Lenovo and Huawei's spin-off x86 server unit, xFusion. The primary chip Nvidia is legally permitted to sell in China, the H20 was launched after the latest round of U.S. export restrictions took effect in October 2023. Washington has banned exports of Nvidia's most advanced chips to China since 2022, concerned that its rival could use advanced technologies to build up its military capabilities. Analysts estimate Nvidia shipped about 1 million H20 units in 2024, generating revenue of more than $12 billion for the company. Huawei and Cambricon offer domestic alternatives to the H20. (Reporting by Liam Mo, Che Pan, and Fanny Potkin and Brenda Goh; Editing by Clarence Fernandez)

In Geopolitical Chess, China's Latest Energy Norms Block Nvidia's Chip Strategy Amid US Sanctions - NVIDIA (NASDAQ:NVDA)

Feel unsure about the market's next move? Copy trade alerts from Matt Maley -- a Wall Street veteran who consistently finds profits in volatile markets. Claim your 7-Day free trial now. Geopolitical tensions between Washington and Beijing continue to intensify regarding access to artificial intelligence and other advanced semiconductor technology. The U.S. had imposed multiple semiconductor embargoes on China, restricting the latter's exposure to cutting-edge technology from Nvidia Corp's NVDA and Taiwan Semiconductor Manufacturing Co TSM. The move is followed by China's retaliation. China has introduced energy efficiency rules for using advanced chips that would prevent Chinese companies from buying Nvidia's tweaked processors, the Financial Times reported, citing documents they reviewed. Also Read: Nvidia Faces New AI Chip Challenge As Huawei Gains Ground In China Despite US Sanctions China's National Development and Reform Commission urged Chinese groups to use tailor-made chips in new data centers and expansion of existing facilities. According to the report, Nvidia's tailor-made chip for China, H20, failed to comply with the commission's new rules. Reportedly, the Chinese regulator has passively urged Alibaba Group Holding BABA, ByteDance, and Tencent Holding TCEHY against procuring H20 chips, signifying a threat to Nvidia's $17 billion annual business in the country. China is Nvidia's fourth-largest market. Reportedly, Nvidia is eying a meeting between its senior executives and commission chair Zheng Shanjie. Also, Nvidia is ready with a solution to adjust H20 chips to meet the NDRC norms. Tech powerhouses from Alibaba to Tencent aggressively ramped up their orders for H20 chips this year after DeepSeek launched its efficient reasoning model. Reportedly, Huawei Technologies Co doubled the yield rate on its latest AI chips from around 20% a year ago to ~40% now. Huawei's revenue grew by 22% in 2024, reaching 860 billion yuan ($118.27 billion). In February, Nvidia reported fourth-quarter revenue of $39.3 billion, up 78%, beating a Street consensus estimate of $38.05 billion. Nvidia expects first-quarter revenue of $43.0 billion, +/ -- 2%, ahead of a street consensus estimate of $41.75 billion. Price Action: NVDA stock is down 1.83% at $118.47 premarket at last check Wednesday. Also Read: Tesla Bets On Low-Cost EVs in China After February Sales Hit Two-Year Low Photo by fukomuffin on Shutterstock NVDANVIDIA Corp$118.51-1.81%Stock Score Locked: Want to See it? Benzinga Rankings give you vital metrics on any stock - anytime. Reveal Full ScoreEdge RankingsMomentum81.60Growth95.07Quality97.55Value7.07Price TrendShortMediumLongOverviewBABAAlibaba Group Holding Ltd$133.440.52%TCEHYTencent Holdings Ltd$64.83-%TSMTaiwan Semiconductor Manufacturing Co Ltd$179.25-0.91%Market News and Data brought to you by Benzinga APIs

NVIDIA's H20 AI GPU Might Be Banned From Being Sold In China, But This Time, It Is Not The US's Fault

NVIDIA's hot-selling H20 AI accelerator might be banned from being sold in China, as Beijing's new energy efficiency rules could result in Team Green taking a massive revenue hit. Well, NVIDIA's venture in China, especially with AI, has been a rollercoaster ride since the business has been subjected to geopolitical tensions, which means there have been restrictions in place regarding what Team Green could ship to China. This has mostly been from the side of the US. Still, it looks like things might change, as, according to The Financial Times, Beijing is reportedly considering imposing AI chip curbs in an attempt to reduce the influence of NVIDIA's chip over domestic markets and ultimately force companies to choose in-house options. It is claimed that China's National Development and Reform Commission (NDRC) is planning to impose new rules on chips and data centers being used by Chinese companies, and one way they are planning to reduce the presence of NVIDIA's chips is by imposing "energy efficiency" rules. With the new policy being imposed, it is said that NVIDIA's H20 AI accelerator might be banned from being sold in the country, which means that Team Green's AI/DC revenue might take a massive hit since China accounts for a large portion of NVIDIA's AI sales. NVIDIA has apparently already started responding to NDRC's planning, with the firm arranging a meeting with the body's commission chair, Zheng Shanjie. Along with this, NVIDIA might just further "cut down" the performance of the H20 AI accelerator to comply with the new energy rules, but it may not be as easy as it sounds, given that this move will make competitor options a lot more appealing compared to where they are right now. When it comes to the competition NVIDIA faces in China, Huawei is said to be the biggest rival for now, and Jensen Huang has already admitted to this fact. He claims that the Chinese firm has made massive strides in the AI markets, and the firm's influence cannot be ignored. Huawei is planning to release its next-gen Ascend 910C chip soon, which is said to be similar to NVIDIA's H100 in performance, featuring SMIC's 7nm and much more. NVIDIA is said to be earning around $20 billion in YoY revenue from China, and a large portion comes from the H20 AI accelerator. Given that it faces a restriction, it is imminent that Team Green would need to explore an alternative, that too, pretty quickly.

NVIDIA's H20 China GPUs Face Production Woes In Fresh Threat To China Revenue - Report

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy. US sanctions limiting sales of NVIDIA's H20 AI GPUs could have a tighter impact than expected, as a Chinese server company warned customers of a shortage in a client notice. The H20 GPUs came to the forefront of the debate surrounding artificial intelligence in January after China's DeepSeek managed to outperform American peers after using them to train its models. Chinese server firm H3C has warned customers that it is facing tight H20 inventory, which limits the sales of the only high-end NVIDIA GPUs that are sold to China amidst broad US sanctions, which restrict the country's ability to access the most advanced chips. NVIDIA's H20 GPUs made headlines yesterday after a report from the Financial Times cited an old Chinese government notice requiring GPU users to adhere to environmental regulations which could affect the GPUs. NVIDIA's shares are down by 4.3% over the past five days as a result, and are down by 19% year-to-date as the firm fails to escape the pessimism generated during January's DeepSeek selloff. A Reuters report adds to the gloom as it cites a client notice from Chinese server firm H3C to outline that the H20s are now in short supply in China. These GPUs are the only legal latest chips from NVIDIA that can be sold in China. As a result, their demand is high and the shortage has led H3C to prioritize large customers with sizable orders, according to the report. The H20 shortages could last beyond April 20th, warns H3C. Some of the reasons that it cites for the delays include production constraints, despite the fact that similar concerns have primarily involved NVIDIA's latest AI GPUs, the Blackwell lineup. NVIDIA's substantial revenue exposure to China, which could involve as much as 10% of its GPU sales, has roiled the stock this week as investors fret about lower revenue from the country. The firm is already limited from selling its latest AI GPUs to China, and domestic firms in the country are also eager to develop their products to replace NVIDIA. Media reports have suggested that the Trump administration is considering limiting the sales of H20 GPUs to China as well. To reduce their reliance on NVIDIA, Chinese firms, such as DeepSeek, have tested alternatives to NVIDIA's GPU programming language called CUDA. One alternative is Huawei's CANN language, but reports indicate that it severely lags NVIDIA's products in AI performance. The Reuters report isn't the first time that sources have shared about an H20 shortage. Just yesterday, a report on Chinese forum MyDrivers claimed that the GPUs are in short supply as firms such as Tencent purchase 'tens of billions of Yuan' worth of products. Whether these purchases are motivated solely by the need for computing power or if potential H20 restrictions are making Chinese firms stockpile them ahead of the new rules being announced is uncertain. Additionally, whether NVIDIA has also slowed H20 production to avoid excess inventory as it waits for clarity remains unclear. The firm has requested the Trump administration to reconsider the previous administration's rules that limit its unrestricted chip sales to only 18 countries.

Nvidia Faces Fresh China Setback As Chip Shortages And Sanctions Disrupt Supply - NVIDIA (NASDAQ:NVDA)

Chinese semiconductor companies continue to face the Nvidia Corp NVDA chip crisis amid Washington's semiconductor sanctions on China. Chinese server maker H3C highlighted a possible Nvidia H20 chip crisis to Reuters, adding that current inventory was nearly depleted. H3C told Reuters that supply plans beyond April 20 also face uncertainties from raw material policy changes, shipping disruptions, and production challenges. Also Read: Alibaba Strikes Back With New AI Model To Rival DeepSeek In China The Chinese server maker told Reuters it would distribute incoming H20 chips, prioritizing long-term customers with higher profit margins on their orders. H3C attributed the crisis to geopolitical tension and said new shipments were expected by mid-April 2025. Chinese AI startup DeepSeek's cost-effective AI models have triggered demand for H20 chips. Tencent Holding TCEHY, Alibaba Group Holding BABA, and ByteDance ramped up orders of the H20 since DeepSeek emerged. H3C is a major OEM partner for Nvidia's AI chips in China. Reportedly, China urged firms like Alibaba and Tencent to avoid Nvidia chips, while Huawei Technologies Co doubled the yield rate of AI chips. China has also introduced energy efficiency rules for using advanced chips that would prevent Chinese companies from buying Nvidia's tailor-made processors. Reportedly, Nvidia's tailor-made chip for China, H20, failed to comply with China's National Development and Reform Commission's new rules. Price Action: NVDA stock is down 0.98% at $112.68 at the last check on Thursday. Also Read: In Geopolitical Chess, China's Latest Energy Norms Block Nvidia's Chip Strategy Amid US Sanctions Photo courtesy of Nvidia NVDANVIDIA Corp$112.55-1.07%Stock Score Locked: Want to See it? Benzinga Rankings give you vital metrics on any stock - anytime. Reveal Full ScoreEdge RankingsMomentum77.14Growth95.11Quality97.29Value7.24Price TrendShortMediumLongOverviewBABAAlibaba Group Holding Ltd$137.093.67%TCEHYTencent Holdings Ltd$66.772.80%Market News and Data brought to you by Benzinga APIs

Nvidia's China-Compliant AI Chip Inventory Nearly Depleted, H3C Tells Clients

China's second-largest server manufacturer H3C has warned customers that it is running low of Nvidia H20 chips. | Credit: Picture Alliance / Getty Images. Chinese server maker H3C has warned its clients about potential shortages of Nvidia H20 chips. Specifically designed to comply with U.S. export restrictions, the H20 is less powerful than Nvidia's most advanced AI processors, but that hasn't dampened demand from Chinese businesses. H20 Demand Soars Reuters reported in February that Alibaba, Tencent and ByteDance had "significantly increased" H20 orders amid an uptick in demand for AI compute. The increased demand coincides with the rapid adoption of DeepSeek's R1 model by Chinese firms. Interest in DeepSeek is so high that some server manufacturers , including H3C, Inspur, Huawei and Lenovo, have designed specialized machines with the AI model pre-installed. The surge in demand has reportedly depleted H3C's stockpile of H20 cards. However, other server players have been working to find alternatives to Nvidia GPUs. Accelerating Chip Diversification When the U.S. initially blocked H100 sales to China in late 2022, it dialed up the pressure on Chinese chip makers to develop a viable AI processor of their own. Tech firms Alibaba and Huawei have been at the forefront of efforts to reduce China's reliance on Nvidia chips, with Huawei's latest Ascend 910C now offering comparable performance to an H100. Notably, many of the DeepSeek-optimized servers now on offer incorporate Huawei's Ascend range. And with H20s in short supply, H3C and others will likely accelerate efforts to diversify away from Nvidia. If China's AI boom teaches anything, it is that hardware limitations can be overcome. In the case of DeepSeek, necessity sparked a renewed focus on efficiency that evolved into a valuable innovation in its own right. For H3C and its peers, a similar response to GPU shortages could prompt an equivalent pivot to alternatives.

Nvidia China sales threatened by new environmental rules- FT By Investing.com

Investing.com-- NVIDIA Corporation's (NASDAQ:NVDA) China sales could face more pressure from new energy efficiency rules on the use of advanced artificial intelligence chips, which would block purchases by local companies, the Financial Times reported on Wednesday. The National Development and Reform Commission, China's top economic planner, is advising Chinese companies to use chips that meet the new energy standards in new data centers and servers, the FT report said, citing official documents seen by the publication. The documents showed that Nvidia's H20 chip- a less powerful chip that is authorized by Washington for sale in China- does not meet the new energy rules, the FT report said. The FT report said that China had also quietly discouraged major tech companies- such as Alibaba (NYSE:BABA), ByteDance, and Tencent- from purchasing the H20 chips. The rules were imposed last year, but have not yet been enforced strictly, and have so far had limited impact on Nvidia's China sales. Nvidia has prepared a solution to alter its H20 chips in compliance with Chinese rules. But this could hurt the chip's performance and competitiveness, the FT report said. Rivals such as Huawei already make competing chips. The U.S. had in 2023 imposed strict restrictions on Nvidia and its peers, preventing them from selling their most advanced AI chips in China to block the country's AI development. But this appeared to have pushed Chinese developers towards efficiency over processing power, with the recent release of DeepSeek indicating that China still remained competitive in the AI race. China is a major market for Nvidia, with the company seeing a surge in local orders this year as major Chinese internet firms raced to match DeepSeek. The company is gradually becoming embroiled in U.S.-China trade tensions, with Beijing having reportedly launched an antitrust probe against Nvidia in late-2024. Washington is also considering new measures to further block Nvidia sales in China, although this is likely to impact the AI darling's earnings.

Exclusive-China's H3C warns of Nvidia AI chip shortage amid surging demand

BEIJING (Reuters) - One of China's largest server makers, H3C, has flagged potential shortages of Nvidia's H20 chip, the most advanced AI processor legally available domestically under U.S. export controls, in a client notice seen by Reuters. The potential supply crunch could create obstacles for China's artificial intelligence ambitions at a time when its tech firms are aggressively expanding their investments in AI. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted. Geopolitical tension that is roiling global trade and supply of key materials was responsible for the uncertainty, it added, saying new shipments were expected by mid-April this year. H3C and Nvidia did not immediately respond to Reuters' requests for comment. Demand for H20 chips has surged in recent months as companies rush to adopt Chinese AI startup DeepSeek's cost-effective AI models. Tencent, Alibaba and ByteDance have significantly increased orders of the H20 since the Chinese AI startup burst into the global public consciousness since January, Reuters reported last month. The Chinese server maker said supply plans beyond April 20 also face uncertainties from raw material policy changes, shipping disruptions, and production challenges. In the notice, H3C said it would distribute incoming H20 chips on the basis of a profit-first principle, prioritising stable, long-term customers with higher profit margins on their orders. H20 processors are currently scarce in the Chinese market, said an industry source, who distributes AI servers including those that make use of H20 chips. "We were told the chips would be available, but when it came time to actually purchase them, we were informed they had already been sold at higher prices," added the source, who sought anonymity given the information is private. U.S. officials were considering curbs on sales of H20 chips to China, Reuters reported in January. H3C is a major OEM partner for Nvidia's AI chips in China, alongside others such as Inspur, Lenovo and Huawei's spin-off x86 server unit, xFusion. The primary chip Nvidia is legally permitted to sell in China, the H20 was launched after the latest round of U.S. export restrictions took effect in October 2023. Washington has banned exports of Nvidia's most advanced chips to China since 2022, concerned that its rival could use advanced technologies to build up its military capabilities. Analysts estimate Nvidia shipped about 1 million H20 units in 2024, generating revenue of more than $12 billion for the company. Huawei and Cambricon offer domestic alternatives to the H20. (Reporting by Liam Mo, Che Pan, and Fanny Potkin and Brenda Goh; Editing by Clarence Fernandez)

China's H3C warns of Nvidia AI chip shortage amid surging demand

* Server maker H3C warns of depleting inventory of H20 chips * Demand for Nvidia's H20 chips surges as AI efforts boost orders * H3C to distribute limited supply on basis of profit margins BEIJING, March 27 (Reuters) - One of China's largest server makers, H3C, has flagged potential shortages of Nvidia's H20 chip, the most advanced AI processor legally available domestically under U.S. export controls, in a client notice seen by Reuters. The potential supply crunch could create obstacles for China's artificial intelligence ambitions at a time when its tech firms are aggressively expanding their investments in AI. "H20's international supply chain faces significant uncertainties," the company said in Tuesday's notice, adding that current inventory was nearly depleted. Geopolitical tension that is roiling global trade and supply of key materials was responsible for the uncertainty, it added, saying new shipments were expected by mid-April this year. After publication, a Nvidia spokesperson said the company declined to comment. In a statement to Reuters following publication, H3C said "after verification, neither the company nor any of its departments have issued this notice or its related content." Demand for H20 chips has surged in recent months as companies rush to adopt Chinese AI startup DeepSeek's cost-effective AI models. Tencent, Alibaba and ByteDance have significantly increased orders of the H20 since the Chinese AI startup burst into the global public consciousness since January, Reuters reported last month. The Chinese server maker said supply plans beyond April 20 also face uncertainties from raw material policy changes, shipping disruptions, and production challenges. In the notice, H3C said it would distribute incoming H20 chips on the basis of a profit-first principle, prioritising stable, long-term customers with higher profit margins on their orders. H20 processors are currently scarce in the Chinese market, said an industry source, who distributes AI servers including those that make use of H20 chips. "We were told the chips would be available, but when it came time to actually purchase them, we were informed they had already been sold at higher prices," added the source, who sought anonymity given the information is private. U.S. officials were considering curbs on sales of H20 chips to China, Reuters reported in January. H3C is a major OEM partner for Nvidia's AI chips in China, alongside others such as Inspur, Lenovo and Huawei's spin-off x86 server unit, xFusion. The primary chip Nvidia is legally permitted to sell in China, the H20 was launched after the latest round of U.S. export restrictions took effect in October 2023. Washington has banned exports of Nvidia's most advanced chips to China since 2022, concerned that its rival could use advanced technologies to build up its military capabilities. Analysts estimate Nvidia shipped about 1 million H20 units in 2024, generating revenue of more than $12 billion for the company. Huawei and Cambricon offer domestic alternatives to the H20. (Reporting by Liam Mo, Che Pan, and Fanny Potkin and Brenda Goh; Editing by Clarence Fernandez and David Evans)