Huawei's AI Chip Ambitions: A Threat to Nvidia's Dominance in China

Huawei, the Chinese tech giant, is making significant strides in the AI chip market, posing a growing threat to Nvidia's long-standing dominance in the region. With the US government imposing sanctions on Huawei and export curbs on Nvidia's advanced processors, the competitive landscape in China's AI chip market is undergoing a significant shift.

Huawei's self-developed 910B Ascend chips have gained traction across various industries, facilitated by the increasing popularity of "AI boxes." These AI boxes are all-in-one machines that integrate AI chips, industry-specific algorithms, and pre-trained large AI models, providing ready-to-use solutions for small companies and government entities. They offer a cost-effective way for these organizations to fine-tune large model-based services without substantial investments.

Previously dominated by Nvidia, the mainland market is now seeing a potential shift, with Huawei poised to overtake its American rival. In response to US export restrictions on its A800, H800, and L40S processors, Nvidia has introduced lower-grade chips, such as the H20, tailored for China. However, these chips are being sold at a discount compared to Huawei's Ascend 910B chips, reflecting the intensified competition and market challenges Nvidia faces.

Huawei's Ascend ecosystem has grown rapidly, boasting 40 hardware partners, 1,600 software partners, and 2,900 AI application solutions. Prominent Chinese companies like Tianjin Sitonholy and SenseTime are adopting Huawei chips for their AI boxes, with SenseTime anticipating a doubling of its generative AI sales due to these AI boxes.

Analysts predict that Huawei's expanding AI chip business will soon dominate the market. AI boxes, deemed essential for businesses, are expected to predominantly feature local players led by Huawei. Insights from Pacific Securities and Counterpoint analysts underscore Huawei’s technological capabilities and substantial market potential. However, the pace of Huawei’s ascendancy hinges on its ability to ramp up production, as manufacturing high-performance AI accelerators and server processors is more complex than mobile system-on-a-chip products.

Despite these advancements, Nvidia remains a significant player, having accounted for 90% of AI chips sold in China in the first half of the previous year, compared to Huawei’s 6%. Nevertheless, the market tide is turning, with more Chinese companies launching AI boxes using Huawei chips. Nvidia’s tailored-for-China chips, including the H20, are currently selling at a discount compared to Huawei’s offerings.

Looking ahead, Huawei is expected to prioritize AI chips over mobile chips to secure a leading market position in China. Collaborations with companies like iFlyTek aim to address computing-power bottlenecks, with products like the Spark Number 1 AI box benchmarked against Nvidia’s A100 processor.

Nvidia’s strategic response to this competitive pressure includes price cuts and the introduction of tailored chips for the Chinese market. Despite these efforts, analysts highlight the uncertainty surrounding Nvidia’s future in China amid US-China tensions and a fiercely competitive landscape.

As China’s share of the global AI industry is projected to exceed 30% by 2035, the ongoing battle between Huawei and Nvidia in the AI chip market will have far-reaching implications for both companies and the broader industry.

In conclusion, Huawei's aggressive expansion into the AI chip market, driven by its self-developed Ascend series and strategic partnerships, is challenging Nvidia's long-standing dominance in China. As the geopolitical landscape continues to evolve, the competitive dynamics between these two tech giants will shape the future of the AI chip market in the region.