Nvidia’s China Restart Faces Production Obstacles
The Takeaway
• Nvidia has told Chinese customers it has limited supplies of H20 chips
• Company doesn’t plan to restart production
• Supply constraints could also limit availability of upgraded H20 version
President Donald Trump’s recent decision allowing Nvidia to resume sales of the H20 artificial intelligence chips to China sent its Chinese customers—mostly big tech firms like ByteDance and Alibaba—into a frenzy to snap up chips before the U.S. administration changes its mind again. Nvidia’s message: not so fast.
The AI chip giant has told its customers it has only limited stocks of the H20 chips—the most powerful AI chip it had been allowed to sell to China under U.S. export restrictions, according to three of Nvidia’s Chinese customers. And right now, Nvidia doesn’t plan to restart production.
Nvidia’s stance underscores the business complications stemming from the Trump administration’s policy flip-flops on international trade, particularly when companies are dealing with severe supply chain constraints.
The U.S. government’s April ban on sales of the H20 chips forced Nvidia to void customer orders and cancel manufacturing capacity it had booked at Taiwan Semiconductor Manufacturing Co., which makes the chips, according to two people with direct knowledge of the order cancellation.
Reversing those moves won’t be easy. TSMC’s facilities are running at full capacity, and the company has shifted its production lines used for the H20 to other chips for other customers, the two people said. Manufacturing new chips from scratch would take nine months, CEO Jensen Huang said at a media event in Beijing this week.
As a result, Nvidia will only fulfill orders until it uses up its existing stocks. The company had written off $4.5 billion related to “excess inventory” in the first quarter as a result of the ban. It has told customers it has no immediate plans to restart wafer production for the H20.
Nvidia and TSMC declined to comment.
Nvidia’s stance shows how supply chain hiccups could hinder the company’s ability to fully capitalize on the opportunity to return to the lucrative Chinese market in the near term. China accounted for 13% of Nvidia’s revenue in the year to January, although it was higher in the past—21% in fiscal 2023—before steadily expanding export restrictions reduced what Nvidia could sell to China.
Its H20 inventory includes chips that are ready to ship as well as wafers in production. Wafers are thin, circular slices of silicon that can be diced into hundreds or thousands of chips. It typically takes one to two months to package the chips with other components, then up to another two months for server makers to assemble the package on motherboards and servers.
The immediate production capacity limitations are not the only difficulties confronting Nvidia as it looks to resume business in China.
The Santa Clara, Calif.–based company had been working on an upgraded version of the H20 before the April ban. That upgraded H20 features advanced high-bandwidth memory chips, which are mainly supplied by SK Hynix. The South Korean company this week informed Nvidia it would have limited capacity to supply additional advanced memory chips for use in the upgraded H20 if Nvidia orders more, according to two people involved in the communications. It’s also unclear whether the government’s authorization of H20 sales extends to the upgraded version. SK Hynix declined to comment.
Last year, Nvidia was developing another offering for the Chinese market based on its latest Blackwell architecture. That offering isn’t allowed under current U.S. export rules, but Nvidia is expected to lobby for permission to sell more advanced chips over time. Its other customers elsewhere in the world have mostly moved over to Blackwell chips.
Nvidia has been speaking with some of its largest Chinese customers in recent weeks to learn about their specific chip requirements—such as how many H20 and future Blackwell chips they hoped to buy. Nvidia has also been asking for feedback on the H20, as well as suggestions for improvements for any next-generation products, according to two Nvidia employees.
The communications will help Nvidia decide whether to commit to more H20 orders or focus on lobbying Washington to allow it to offer more powerful China-tailored chips based on the Blackwell architecture so it can compete against local rivals such as Huawei Technologies.