A potential shortage of Nvidia’s H20 artificial intelligence chips is emerging in China, threatening to disrupt the country’s rapid AI expansion efforts and exposing fault lines in global semiconductor supply chains. H3C, one of China’s largest server makers and a key OEM partner for Nvidia, issued a warning this week to clients, citing “significant uncertainties” in the international supply chain for the H20 processor, according to a client notice reviewed by Reuters.
The H20 is the most advanced AI chip currently permitted for sale in China under U.S. export controls. H3C’s notice stated that current inventories were nearly depleted, with new shipments not expected until mid-April. “H20’s international supply chain faces significant uncertainties,” the company wrote, attributing the delays to geopolitical tensions, raw material policy changes, and shipping disruptions.
The shortage comes as Chinese demand for the H20 surges. Major technology firms including Tencent, Alibaba, and ByteDance have significantly increased orders of the chip since January, driven largely by the rise of DeepSeek’s low-cost R1 AI model, which has seen rapid adoption in the domestic market.
In response to the scarcity, H3C announced it would distribute incoming H20 inventory under a “profit-first principle,” prioritizing clients who offer higher margins and long-term business stability. “We were told the chips would be available, but when it came time to actually purchase them, we were informed they had already been sold at higher prices,” said an anonymous industry source who distributes AI servers using the H20.
The H20 was introduced in late 2023 after the Biden administration implemented tighter export controls on AI chips, barring sales of Nvidia’s most powerful GPUs to Chinese entities. The H20 was specifically designed to comply with those restrictions while still offering competitive AI performance. Analysts estimate Nvidia shipped approximately 1 million units of the chip to China in 2024, generating over $12 billion in revenue.
Nvidia did not respond to requests for comment, nor did H3C. The growing backlog suggests a fragile balance between regulatory compliance and market demand, especially as Chinese companies race to build domestic AI capabilities in the face of persistent U.S. technology restrictions.
H3C is one of several major Nvidia partners operating in China, alongside Inspur, Lenovo, and xFusion-a server unit spun off from Huawei. Domestic chipmakers like Huawei and Cambricon are working to develop alternatives to the H20, though their competitiveness at scale remains in question.
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