China’s tech giants feel the pain from US ban on AI chips, outline plans to minimise impact on cloud computing business
- Alibaba said revenue from its AI training model and related services may be constrained in the foreseeable future due to the new export rules
- Tencent president Martin Lau said it will make the most of its AI chip supply by offloading inference work to lower-performance chips
Chinese tech giants, including Alibaba Group Holding and Tencent Holdings, are feeling the pinch of the latest US chip export controls but have plans to minimise the impact, according to comments made by their CEOs in third-quarter earnings calls this week.
E-commerce titan Alibaba and Tencent, the social media and video gaming giant, both warned investors of the impact on their cloud computing business from stepped-up US export controls, which restrict certain advanced semiconductors and chip-making equipment from being sold to China.
This is the first time that China’s Big Tech firms have publicly addressed the US export controls, which were strengthened last month with a new set of rules conforming to the “small yard, high fence” principle, aimed at hindering China’s abilities in AI and semiconductor manufacturing.
Both Alibaba and Tencent suggested they were evaluating ways to minimise the impact on their business growth.
“What we can certainly expect to see in the China market is that there will be multiple different chips being used, multiple providers, meeting demand for AI computing power in the market,” Alibaba CEO Eddie Wu Yongming said on the call.
He added that Alibaba’s cloud computing operations have been based on central processing units (CPUs) over the past 14 years but that it will rely on a more diverse supply of graphic processing units (GPU) going forward.
Alibaba owns the South China Morning Post. On Friday, its Hong Kong-listed shares slumped nearly 10 per cent.
Tencent president Martin Lau Chi-ping said on the earnings call that the company boasted “one of the largest inventories of AI chips in China among all the players” because it was first to put in orders for Nvidia’s H800, a data centre GPU tailored-made by the US chip maker for its mainland Chinese clients. Exports of the H800 to China were banned under the updated US rules.
Lau said Tencent will try to make the most of its AI chip supply by offloading inference work to lower-performance chips, and reserving most of its high-performance AI chips for training purposes.
China launched 64 large language models (LLMs) during the first seven months of the year, according to local media TMT Post, citing official figures. China’s LLMs accounted for 40 per cent of the global total, just behind the US with a 50 per cent share, according to a Reuters’ report citing data from brokerage CLSA.
However, under the new export rules the future looks even dimmer for China’s AI industry, as the restrictions will slow the country’s progress in developing large AI models, analysts have said.
Further, demand for Nvidia’s high-end AI servers from Chinese tech giants ByteDance, Baidu, Alibaba and Tencent – collectively known as BBAT – will drop from 5 to 6 per cent of the global total to 3 to 4 per cent, according to market research firm TrendForce.
Chinese cloud service providers are also expected to expedite stockpiling efforts in the short term and accelerate independent AI chip development, while US AI chip makers like Nvidia and AMD will introduce products that comply with the new US regulations, TrendForce said.
The supply of those earlier chips, the H800 and A800, is now so tight that prices have increased up to 40 per cent compared to a month ago, according to a sales manager at a Beijing-based Nvidia distributor.
