Production of semiconductor chip File photo: VCG

Leading chip designer Nvidia said on Tuesday that it will produce newly compliant chips for China, and it forecast, during its third-quarter earnings call, a drop in its China sales in the fourth quarter. This move marks the latest effort by US chip companies to supply products to China, following an upgraded US chip ban announced in October to hinder China's technological advancement. 

Experts noted that this move reveals the urgent survival pressure on chip companies like Nvidia under stepped-up US export controls, which they believe will backfire and cause US companies to lose the Chinese market.

Nvidia said it anticipates a significant decline in fourth-quarter sales in China due to expanded US chip restrictions.

The company's main revenue driver, data center products, stood at a record high of $14.5 billion, up 279 percent year-on-year, in the fiscal third quarter that ended on October 29. But Nvidia expects a drop in sales to China, which have consistently accounted for about 20 percent to 25 percent of data center revenue, in the November-January quarter, Nikkei reported.

"Export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term," Chief Financial Officer Colette Kress said in the earnings call with analysts, according to a report by Reuters on Tuesday.

Kress also confirmed reports that the chip giant is developing newly compliant chips for China but those won't materially contribute to fourth- quarter revenue, Reuters reported.

US officials unveiled a new batch of restrictions in October and said they will continue to update them as needed.

Nvidia said in October that the new US export restrictions would block it from selling two of its modified advanced artificial intelligence (AI) chips - the A800 and H800 - both were created for the China market last year to comply with previous export rules.

The stepped-up chip ban could cost US chip giants like Nvidia the China market once and for all, as Chinese makers are seeking domestic replacements, Chinese experts warned.

The latest offering of a modified version shows the urgency of US companies to retain the China market, yet adapting to the changing US rules would add to the operational costs of the companies and affect their production plans, Ma Jihua, a veteran telecom industry analyst, told the Global Times on Wednesday.

"Despite their efforts, a reduction in computing power would make US chips less competitive for Chinese buyers, who are actively seeking domestic alternatives. This means that companies like Nvidia will likely be ousted from the China market," Ma further noted.

Chinese manufacturers are actively pursuing domestic alternatives in response to escalating US chip bans.

LAU Chi Ping, president of Tencent, said that the company has enough chips on hand, and the US ban will compel the company to utilize existing chips more efficiently and seek domestically produced AI chips, according to media reports.

Baidu ordered 1,600 of Huawei Technologies' 910B Ascend AI chips - which the Chinese firm developed as an alternative to Nvidia's A100 chip - Reuters reported, citing people familiar with the matter. 

The uncertainty caused by the US sanctions and a denial of access to advanced chips may lead Chinese companies to prefer domestic chips, Xiang Ligang, a veteran analyst in the telecom industry, told the Global Times.

The development of domestic AI chips could be fostered by this ecosystem, while the loss of the China market would greatly affect US companies, Xiang said on Wednesday.

While the US government is creating uncertainty, businesses are actively seeking much-needed certainty. Multiple US chip enterprises including Intel and Qualcomm, which participated in the 6th China International Import Expo held in November in Shanghai, brought their latest research results and products, showing efforts to retain the China market despite the US curbs.

China has repeatedly made clear its position on US chip export controls targeting China. 

The US should stop politicizing, instrumentalizing and weaponizing tech and trade issues and stop disrupting global industry and supply chains. We will closely follow these developments and firmly safeguard our rights and interests, Chinese Foreign Ministry spokesperson Mao Ning told a press conference on Friday.