Nvidia Excludes China From Forecasts Due To US Export Controls

Nvidia, a leading AI chipmaker, has decided to exclude the Chinese market from its financial forecasts due to stringent export controls imposed by the U.S. government. CEO Jensen Huang, in an interview with CNN, highlighted the impact of these restrictions on the company's business operations in China. Huang has been vocal about the limitations these controls place on U.S. manufacturing and growth opportunities, particularly in the semiconductor industry.

Huang emphasized that the company's forecasts will no longer include the Chinese market, a decision driven by the recent tightening of export controls. These controls, initiated by the Department of Commerce, include the revocation of a Biden-era rule that capped the number of chips other countries could purchase. Additionally, the administration has restricted companies like Synopsys Inc. and Siemens AG from selling chip design software to China without a U.S. government license.

Despite reporting a significant 69% increase in quarterly revenue, Nvidia missed out on $2.5 billion in revenue due to its inability to ship H20 chips to China. These chips, designed to comply with U.S. export controls, resulted in a $4.5 billion charge due to excess inventory. Huang expressed concern that the crackdown on trade with China could hinder U.S. manufacturing efforts, rather than bolster them as intended.

Huang also warned that the export controls are not achieving their intended goals and may instead spur China to accelerate its own semiconductor development. He stressed the importance of clearly articulating and testing the goals of export controls over time. The Department of Commerce did not immediately respond to requests for comment, and Nvidia declined to provide additional remarks beyond Huang's statements.

Analysts have noted that Huang's decision to exclude China from Nvidia's financial forecasts is a strategic move to manage investor expectations in light of the uncertain trade environment. Dan Ives, managing director at Wedbush, described Huang as both a politician and a CEO, navigating the complexities of the trade landscape while ensuring financial guidance remains cautious.

Ives agreed with Huang that the export controls present a significant challenge to the U.S. industry, potentially giving China an opportunity to catch up with U.S. technological advancements. Huawei's CEO, Ren Zhengfei, has indicated that China-produced chips are currently one generation behind Nvidia's but that the company is finding workarounds to improve performance.

The future of export controls remains uncertain as the U.S. and China finalize a trade framework. As part of this deal, China may consider speeding up the issuance of rare earths export licenses in exchange for lifted restrictions on technology related to semiconductor chip production. This development suggests that some of the recent U.S. controls, including those on semiconductor design software, may be relaxed as part of the agreement.

Geoffrey Gertz, a fellow at the Center for a New American Security and former National Security Council official, noted that the U.S. government has opened the door to negotiating away export controls. This shift could lead to continued pressure from China and other countries to ease these restrictions. The evolving trade dynamics between the U.S. and China will likely shape the future of the semiconductor industry and its global supply chains.