China’s H3C Warns of Looming Nvidia H20 Chip Shortage Amid Soaring AI Demand
H3C, one of China’s largest server manufacturers, has warned clients of a potential shortage of Nvidia’s H20 chips, the most advanced AI processor currently permitted for sale in China under US export regulations. In a notice seen by Reuters, the company cited growing uncertainty in the international supply chain and noted that its existing inventory is nearly exhausted.
The chip supply crunch could pose a significant hurdle for China’s AI development ambitions, which have accelerated rapidly in recent months amid a surge in investment from domestic tech giants.
Geopolitics and Supply Chain Disruptions at Play
H3C attributed the supply uncertainty to ongoing geopolitical tensions disrupting global trade and access to critical raw materials. The company expects new shipments to arrive by mid-April, though it cautioned that deliveries beyond April 20 could face further delays due to policy changes, logistics issues, and production challenges.
Soaring Demand from China’s AI Leaders
According to Reuters, demand for the H20 has spiked as Chinese tech firms, including Tencent, Alibaba, and ByteDance, have sharply increased orders following the rise of DeepSeek, a domestic AI startup offering cost-effective AI models. These companies are racing to scale up their AI capabilities in the face of increasing global competition and mounting US export restrictions.
However, with demand outpacing supply, the market is experiencing significant strain. One industry insider who distributed AI servers told Reuters that customers were initially assured of chip availability, only to find later those units sold at higher prices elsewhere.
Nvidia’s H20 Becomes Central to China’s AI Strategy
Reuters reports that the H20 chip, designed specifically for compliance with US export controls, was launched by Nvidia following the latest wave of restrictions in October 2023. These regulations barred exports of Nvidia’s most advanced processors to China over concerns about their potential military applications.
Analysts estimate that Nvidia shipped around 1 million H20 chips in 2024, generating over $12 billion in revenue.
With limited access to Nvidia’s top-tier AI hardware, China has turned to alternative providers like Huawei and Cambricon, which offer domestically developed AI processors. However, the H20 remains crucial for Chinese firms aiming to stay competitive in the global AI race.
Also read: NVIDIA Unveils Next-Generation DGX Personal AI Supercomputers
Priority Access for High-Margin Clients
Reuters stated that in its notice, H3C said it would distribute the incoming H20 chips according to a profit-first model, prioritizing long-term, high-margin customers. This approach, while aimed at optimizing returns, may further complicate access for smaller players in China’s AI ecosystem.
