Tech war: Nvidia warns of sales hit in China from US chip curbs, as tailor-made products take time to develop

US semiconductor giant Nvidia said on Wednesday it was developing new products for China-based customers, but the process would take time because of the need to formulate chips that meet those clients’ requirements without breaking Washington’s export rules.

“It’s a significant process to both design and develop these new products,” said Colette Kress, chief financial officer of Nvidia, during a post-earnings conference call with analysts late on Tuesday (US time). She added that the firm would stay focused on “finding the right balance” for its customers in China in view of the US chip restrictions.

Nvidia earlier this year joined an elite club of US companies with a valuation of more than US$1 trillion, thanks to a surge in demand for its semiconductors supporting artificial-intelligence (AI) systems.

The company’s third-quarter revenues soared 206 per cent year on year to US$18.12 billion, according to financial statements released on Tuesday.

Accelerated AI adoption in industries worldwide pushed sales of the company’s data-centre business up by 279 per cent to US$14.51 billion, outperforming its headline revenue growth for the ninth straight quarter.

But headwinds are mounting for Nvidia in the China market, after the US government in October tightened regulations aimed at undercutting China’s AI development by blocking the country’s access to data-centre chips from the company.

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

The Santa Clara, California-based company has already developed three new data-centre graphics processing units for customers in mainland China after two earlier versions that were tailor-made for those clients were banned. But the first shipments were not expected until the end of December, the Post previously reported.

Meanwhile, Nvidia is also working with some customers in China and the Middle East to pursue special licences from the US government to buy the company’s products, according to Kress.

Chinese Big Tech firms, including e-commerce titan Alibaba Group Holding, owner of the Post, and social media and video-gaming giant Tencent Holdings, have both warned investors of the impact of stepped-up US export controls on their cloud computing businesses.

The tightened restrictions, targeting China and other countries of concern, have set a higher bar for exports of advanced chips and certain chip-making equipment capable of making those semiconductors.

The new ban on China-bound processors took effect for Nvidia on October 23, nearly a month earlier than the effective date of November 17 originally stated by the US Department of Commerce, according to a stock filing by Nvidia on Tuesday.

China, which also includes Hong Kong, was Nvidia’s third largest single market after the US and Taiwan during the last financial year ended January 29, according to the company’s annual report.

The China market made up 21.5 per cent of Nvidia’s total revenue of US$26.9 billion in the last financial year, down from 26 per cent in the previous year.

Despite uncertainties in the Chinese market, a global AI boom ushered in by OpenAI’s ChatGPT a year ago continued to boost sales of Nvidia’s data-centre chips, which exceeded the firm’s video-gaming market revenues last financial year for the first time.