British AI chip darling Graphcore pulls out of China as Nvidia rival becomes latest casualty of US export curbs

British semiconductor firm Graphcore is slashing staff in China and will no longer sell products in the country, citing Washington’s latest export restrictions on sales of advanced artificial intelligence (AI) chips as the last straw in the market for the struggling company once regarded as a potential rival to industry leader Nvidia.

The tightened regulations, announced in October, took effect this month and are aimed at restricting China’s access to high-end semiconductor technology with US inputs, focusing on data-centre chips used to train AI.

“The recently updated US export controls mean that Graphcore – in common with other AI hardware manufacturers – is no longer able to sell [intelligence processing unit (IPU)] systems in China,” a company spokesman said in a statement to the Post.

“Regrettably, this means we will be significantly scaling back business operations in China,” he added, noting that all of the company’s top-line products had fallen under the new regulations.

The spokesman did not elaborate on the number of staff that would be let go in China, where it set up its Beijing headquarters in 2019.

The development is the latest setback for Graphcore, a darling of the British chip industry that some say was on its way to taking on American industry titan Nvidia, the maker of the world’s most advanced AI graphics processing units (GPUs). Founded in 2016 in Bristol, England, the company was valued at US$2.8 billion by 2020 after a US$222 million funding round.

However, Graphcore saw its revenue fall 46 per cent in 2022, with losses of US$204.6 million for the year, according to its latest financial filing in October. The company said it needed more funding to keep operating, but has not announced any new rounds.

“Elsewhere, the need for AI computing continues to increase, and Graphcore is working with customers around the world to meet their demand for a powerful, cost-effective alternative to GPUs,” the Graphcore spokesman said on Thursday.

Graphcore CEO Nigel Toon speaks during the Bloomberg Technology Summit in London on October 24, 2023. Photo: Bloomberg

Virtually no advanced chip maker has been left unscathed by the US chip export restrictions to China, which have been escalating over the last couple of years. AI has been a particular focus for Washington, forcing Nvidia to make its custom A800 and H800 GPUs just for China, which now fall under the new sanctions.

Nvidia has said it plans to again tailor new AI chips for Chinese customers, but the process will take time because of the need to formulate chips that meet those clients’ requirements without breaking the export rules.

Meanwhile, local tech companies such as Alibaba Group Holding and Tencent Holdings have warned the restrictions will affect their cloud computing businesses. Last week, Alibaba withdrew a plan to independently list its cloud unit, citing uncertainties surrounding the restrictions. Alibaba owns the South China Morning Post.

Nvidia now expects sales to China and other US-restricted destinations – which together contributed 20 to 25 per cent of its data-centre revenues in the last few quarters – to “decline significantly” in the fourth quarter.

Despite uncertainties in the Chinese market, the global AI boom ushered in by OpenAI’s ChatGPT launch a year ago has continued to boost sales of Nvidia’s data-centre chips, with the company’s valuation surpassing US$1 trillion this year.

Nvidia’s loss in China has so far been domestic chip makers’ gain, as local tech giants are forced to look closer to home for the hardware they need. In August, Baidu ordered US$61 million worth of Huawei Technologies’ 910B Ascend AI chips, Reuters reported this month.