As the U.S. tightens controls on Nvidia’s sales to China, the country’s rising domestic artificial intelligence chipmakers like Huawei stand to benefit, semiconductor analysts say.
The Commerce Department said last week that Nvidia’s H20 graphics processing units — designed to comply with previous U.S. restrictions — would now require export licenses, as would additional chips from AMD. Nvidia says it has already halted exports of the GPUs, resulting in a quarterly charge of approximately $5.5 billion.
But the American AI darling’s loss could be a gain for China’s local AI chip players as Beijing continues to search for its own Nvidia alternative, semiconductor analysts told CNBC.
“There are several local Chinese companies that produce chips to compete with Nvidia,” said Brady Wang, associate director at Counterpoint Research.
Examples of these local AI chipmakers include tech powerhouse Huawei and the partially state-owned and publicly listed Cambricon Technologies, which designs GPUs.
Shares of Cambricon were up over 10% in the past five trading days amid news of the latest Nvidia controls. The stock is up over 400% in the past 12 months.
These local competitors now have greater impetus and opportunity to grow and improve their solutions, Wang said, adding that he expects that demand for their GPUs will increase.
Can China fill the gap?
Analysts pointed to Huawei as a clear leader in China’s race to find a Nvidia competitor. The U.S.-blacklisted company has been working on its own “Ascend 910” GPU series, the latest of which is reportedly the Ascend 910C.
“With NVIDIA’s H20 and other advanced GPUs restricted, domestic alternatives like Huawei’s Ascend series are gaining traction,” said Doug O’Laughlin, an industry analyst at independent semiconductor research company SemiAnalysis.
A recent report from SemiAnalysis states that although Huawei remains “a generation behind in chips,” the company is “making waves” with the hardware that uses them.
“While there are still gaps in software maturity and overall ecosystem readiness, hardware performance is closing in fast,” O’Laughlin added.
However, experts note that export controls have also hindered China’s ability to produce advanced GPUs at the same scale that Nvidia can through its partner Taiwan Semiconductor Manufacturing Company, the world’s largest contract chip maker.
“Huawei has shown to be a competitive fabless chip designer … but they struggle to find enough supply from their foundries,” said Phelix Lee, a semiconductor-focused equity analyst for Morningstar.
Because TSMC’s chipmaking equipment includes U.S. technology, the company has complied with U.S. trade restrictions on Huawei and the shipment of advanced chips to China. That has left Chinese companies increasingly reliant on domestic foundries like Semiconductor Manufacturing International Corporation.
Nevertheless, SMIC is under its own export controls, which prevents it from accessing some of the world’s most advanced chipmaking equipment.
Given those conditions, Lee said, he remains “very skeptical” that Chinese chip foundries would be able to supply enough H20 GPU alternatives to meet the demand of Chinese tech companies anytime soon.
Are export controls working?
However, experts say that Chinese chip makers won’t need to immediately fill this H20 demand thanks to stockpiles and previous export exemptions and loopholes.
Last month, the Information reported that Chinese companies had placed orders for at least $16 billion in H20 server chips in the first three months of the year. Nvidia did not immediately respond to a CNBC request for comment.
According to Counterpoint’s Wang, it’s unclear how long different firms’ existing stockpiles will last, but they provide Chinese chipmakers more time to scale up their GPU manufacturing.
In the short term, “I believe the impact of the controls is limited … In the middle to longer term, it will depend on the progress of this local GPU development,” he said.
Meanwhile, according to the SemiAnalysis report, Huawei’s Ascend chip shows how China’s export controls have failed to stop firms like Huawei from accessing critical foreign tools and sub-components needed for advanced GPUs.
“While the Ascend chip can be fabricated at SMIC, this is a global chip that has HBM from Korea, primary wafer production from TSMC, and is fabricated by 10s of billions of wafer fabrication equipment from the US, Netherlands, and Japan,” the report said.
SemiAnalysis added that SMIC’s production capacity has the potential to grow massively, given continued access to foreign tools and the lack of effective sanctions and enforcement.
TSMC is reportedly under investigation by the U.S. Department of Commerce after a chip it made for the China-based Sophgo matched one found in Huawei’s Ascend 910B artificial intelligence processor.
Given reports of export control workarounds and Huawei’s GPU progress, a number of semiconductor experts have expressed doubt that the latest restrictions on Nvidia will achieve their intended purpose.
“U.S. controls on GPUs and semiconductor manufacturing equipment have primarily damaged U.S. companies, including Nvidia, while having marginal impact on the ability of Chinese companies to develop frontier AI models,” said Paul Triolo, partner and senior vice president for China at DGA Group.
Instead, export controls have encouraged the Chinese semiconductor industry to become more innovative while “designing out U.S. technology,” he added.
Next month, Nvidia may face additional restrictions on what it can export under “AI diffusion rules” first proposed by the Biden administration.
Source: CNBC