Unraveling Huang's 2023 "Asia Tour": NVIDIA's Hurricane, Anxiety and Anxiety

Jiwei Network Report (Text/Chen Xinghua) At the same time that the artificial intelligence boom has swept the world, Nvidia has also accelerated its running speed and repeatedly created a miracle of "skyrocketing". In order to strengthen NVIDIA's leadership position in the AI processor market, Huang will make frequent appearances in Asia in 2023, visiting Taiwan, India, Japan, Singapore, Malaysia and Vietnam, meeting with politicians, entrepreneurs and scientists. But while leading LinkedIn Weida to soar, there is also his shouting, helplessness and anxiety.

According to many industry insiders, the key motivations for Huang's many trips to Asia include exploring new market growth points in response to the U.S. chip export restrictions to China, finding potential new wafer foundries, and laying out to follow up on the transfer of the semiconductor industry chain. However, even if Nvidia's "black, white and gray" strategies are carried out in parallel, the growth of these emerging markets is bound to be unable to "replace" China. In 2023, although Huang did not visit Chinese mainland, his trip to Asia was almost everywhere for this hot land.

Worries: Emerging markets can't "replace" China

Benefiting from the explosion of generative artificial intelligence, "Hurricane" runs through almost the entire development process of NVIDIA in 2023, which is mainly reflected in the soaring growth of revenue, gross profit and market capitalization, such as its market value exceeded $1 trillion at the end of May, its revenue in the second quarter surpassed Nvidia for the first time, and the gross profit margin climbed to about 75% in the third quarter, and it is expected that this year's profit will be more than the total profit in the first 25 years of listing.

However, as the U.S. restrictions on the supply of high-end AI chips to China are tightening, Nvidia urgently needs to find potential emerging markets.

Not long ago, Nvidia released its financial report for the third quarter of fiscal year 2023, which continued to grow explosively, but its stock price fell more than 4% intraday on the same day, and the decline converged to 2.46% at the close. An important reason for this is that Nvidia said that "sales in China are expected to decline sharply in the fourth quarter, but strong growth in other regions will more than offset this decline." As a result, Nvidia CEO Jensen Huang, who has always had a strong sense of crisis, visited Japan, Singapore, Malaysia and Vietnam in early December.

Dr. Jun Zhang, chairman of CEIBS Capital and former vice president of Huawei, told Jiwei.com: "In order to maintain Nvidia's revenue and market capitalization, Huang must be worried now. On the one hand, Nvidia is limited by the United States in the Chinese market, and on the other hand, many Wall Street analysts are bearish on Nvidia, believing that it is not yet up to the comprehensive strength of a trillion-dollar company. Therefore, Huang needs to do things in a high-profile manner and publicize it to boost the confidence of Wall Street capital. Even if markets such as Southeast Asia are far from being able to replace or alleviate the pressure of Nvidia's precipitous decline in sales in the Chinese market, it is better than nothing. ”

Previously, according to media reports citing sources, Nvidia has completed orders for the delivery of advanced artificial intelligence chips to China this year, and is trying to deliver some orders for 2024 ahead of the new US regulations before they take effect in mid-November. However, the U.S. government abruptly informed Nvidia that new export restrictions on the sale of high-end chips by countries, including China, "take effect immediately." This could lead to Nvidia having to drop more than $5 billion worth of Chinese orders.

According to NVIDIA's third quarter report for fiscal year 2023, its revenue sources accounted for 34.77% in the United States, 23.91% in Taiwan, 22.24% in Chinese mainland (including Hong Kong), and 14.91% in Singapore, with a total of 95.83% in these major markets. From the perspective of financial data, the remaining less than 5% of the market increase is bound to be unable to effectively compensate for the loss of Nvidia's upcoming sales decline in the Chinese market.

It is not difficult to see that Southeast Asia, where Singapore is located, can be described as NVIDIA's "third growth point". As for the reason for its high market share, Maybank Securities analyst Jarick Seet said it was due to Singapore's sizable number of data centres and cloud service providers. According to the data, Singapore accounts for 60% of the total data center capacity in Southeast Asia.

Mo Dakang, a veteran of the semiconductor industry, further pointed out that due to the current high market value and gross profit of the company, Nvidia has become a "target of public criticism". Huang's visit to Southeast Asia and Japan was also somewhat of a frustration, as the decline in sales in the Chinese market will affect revenues, the global market may change from the United States, and competitors are actively promoting product upgrades and self-developed chips. At the same time, NVIDIA's ecology needs the support of TSMC and Hynix, which actually involves the question of how long it can be brilliant.

On the surface, Huang's intensive visits to Southeast Asia and Japan are aimed at expanding into emerging markets outside of China, but the key to Nvidia's game and negotiation for the all-important Chinese market is the U.S. government. As U.S. Secretary of Commerce Gina Raimondo said at a defense forum a few days ago, some chip companies are dissatisfied with the government's recently updated export control regulations because they are suffering losses. "But that's what life is, and protecting our national security is more important than short-term earnings. ”

Later, in response to a certain degree of remoteness, Huang emphasized in an interview in Singapore that "Huawei is a very strong competitor and poses a serious challenge to Nvidia's dominance in the AI accelerator market." He also said that Nvidia is currently working closely with the U.S. government to ensure that new chips for the Chinese market comply with export restrictions. It is reported that NVIDIA's latest "China Special Edition" AI chip will be delayed until the first quarter of 202. However, under the so-called "both want and want" policy goal, it is still unknown how the US government will export Nvidia's GPUs to China.

Undercurrents are surging: the "black, white and gray" strategy is advancing in parallel

In the wave of global technological change set off by AI large models, NVIDIA, as a computing infrastructure provider, has received great attention from various countries. It is reported that during Huang's trip to Asia, he pledged to prioritize meeting Japan's GPU supply needs and helping to build a semiconductor supply chain, consider making a major investment in an AI base in Singapore, and co-develop large models customized for 11 languages in Southeast Asia, and announced that he will build a chip design base in Vietnam and jointly build AI infrastructure in Malaysia.

In this regard, Zhang Jun said, "Artificial intelligence is giving birth to a new industrial revolution, and at the same time, together with 5G, it is the two locomotives of the development of the digital economy. Just as the Internet has done everything over and over again, AI will also do everything over again, and the market potential is huge. For NVIDIA, it is also necessary to strengthen its layout in Southeast Asia, which is a matter of long-term development. ”

But behind the open exchanges and cooperation at the official level, there may be some hidden undercurrents. Industry insiders told Jiwei that in order to circumvent the U.S. chip ban, Nvidia is moving closer to Asia and laying out some gray channels around China, after all, the construction of data centers in Southeast Asia is not very reliable, among which infrastructure, industrial accumulation, business environment, climate and electricity costs are all influencing factors. On the channel channel, the black market can be said to be one of the important promoters of NVIDIA's sky-high chips.

This was evident in Huang's remarks during his visit to Singapore, where "Nvidia has two types of key customers in Singapore, the first being on-premise cloud service providers. Singapore's 1,100 AI startups are driving local demand for cloud GPU consumption, and the second group is companies deploying products to China, trading in Singapore but using their products and services for the Chinese market. ”

Jay Goldberg, CEO of D2D Advisory, a semiconductor consultancy, further told Jiwei.com, "I think what he [Huang] is really focused on is Malaysia, because Malaysia has been a semiconductor packaging hub for a long time." Nvidia sells not only chips, but also complete systems, and if they want to be more actively involved in the manufacturing process, then they will consider using advanced packaging facilities in Malaysia, which will also help them build a more complete DGX system. This is a key constraint in NVIDIA's supply chain, after all, Malaysia's packaging is more advanced than Taiwan's. ”

He also mentioned that Huang intends to expand Nvidia's presence in Singapore, including by recruiting more software engineers and developers as part of the company's expansion in the AI space.

According to some in the industry, Huang may have one more goal on his trip to Asia: to find potential foundry partners.

A few days ago, Nvidia CFO Colette Kress revealed that TSMC and Samsung are both important partners of Nvidia, but Nvidia is also considering adding other potential wafer foundries. Industry analysts point out that NVIDIA's new foundry partner in the future is most likely to be Intel, because it is catching up. It's worth noting that Malaysia is expected to become Intel's largest closed beta base, which may be why Huang is paying more attention to Malaya.

Dr. Zhang Jun further analyzed: "If there is a misfire and a local conflict in the Taiwan Strait, the supply of TSMC and UMC may be blocked, so NVIDIA will also consider making backup layouts on other wafer foundries such as GF in Singapore, such as building factories in Vietnam in case of contingencies." Jay Goldberg also pointed out that Vietnam is most likely to become another manufacturing hub due to its close ties to Taiwanese entrepreneurs and the replication of the "China model", but this is clearly not achieved overnight.

At the same time, the strengthening of the layout of international semiconductor and cloud service giants in Southeast Asia may also bring positive space for NVIDIA. Wang Huilian, founding partner of Helu Semiconductor, believes that "although China has some advantages such as a relatively complete market and industrial chain, it has become an irreversible trend for the global semiconductor industry chain and supply chain to accelerate the transfer to Southeast Asia under the leadership of the United States. ”

Data shows that Amazon AWS, Microsoft Azure, Google Cloud, etc. occupy nearly 80% of the market share in Southeast Asia's public clouds, and relying on strong scale, profit and cost control capabilities, they are bringing the focus of competition to the next stage, that is, large-scale procurement of GPU servers to improve AI computing capabilities. Industry insiders also said that the first stop for China's mainstream cloud vendors to go global is often Southeast Asia. At present, although there are different degrees of shortcomings and unfavorable conditions in Southeast Asian countries, they are constantly strengthening the construction of information infrastructure, and the demographic dividend and potential market in the region are extremely attractive.

Double-sided: Insight into geography and a powerful "shout"

Throughout 2023, Huang has traveled extensively in Asia to meet with politicians, entrepreneurs, and scientists, including three appearances in Taiwan, China, in May, October, and November, as well as visits to India in September, and visits to the four countries in December.

Among them, Huang arranged a number of trips during his visit to Taiwan in late May, including attending Computex Taipei, visiting MediaTek to announce joint development of automotive SoC chips, meeting and having dinner with Chang and his wife, and meeting with Hon Hai Group Chairman Liu Yangwei. Although Huang did not make his itinerary public when he defended Taiwan in October, it was said that the purpose of consolidating the supply chain was significant. However, on October 18, he was revealed to appear at Hon Hai Technology Day, announcing that the two sides would jointly build an AI factory.

In addition, on November 9, when Zhang Zhongmou was awarded the "First Li Guoding Award" in Taiwan, China, Huang Jenxun and his wife made a special trip to Taiwan to participate. He said that without Zhang Zhongmou, there would be no NVIDIA, and without the TSMC he founded, there would be no NVIDIA's current achievements. It is worth mentioning that a number of Taiwanese dignitaries and technology company executives attended the award ceremony.

During his visit to India, Huang was received by Indian Prime Minister Narendra Modi and met with dozens of researchers from the Indian Institute of Sciences, the Indian Institute of Technology and others to exchange views on the rich potential that India offers in the field of artificial intelligence, transforming the digital economy, solving scientific challenges, and using technology to address language barriers, increase agricultural yields, and close gaps in health care services.

Overall, in addition to discussing business cooperation, scientific research and technology, Huang's trip to Asia has been more or less geopolitically coerced or close to itself, such as his first visit to Vietnam, which he said Nvidia "considers Vietnam its home," a statement that may be based on the U.S. State Department's announcement in September of a partnership with Vietnam under the CHIPS Act. In addition, Huang's visit to India came on the sidelines of the G20 summit, and his second visit to Taiwan coincided with the October 17 update of U.S. export controls.

As one of the seasoned industry leaders in Silicon Valley, Huang is well versed in the rules of business competition and has a keen understanding of the international geopolitical situation.

However, Dr. Zhang said, "Huang's visits to Southeast Asia and other regions are more purely commercial, because the key motivation and goal of running a business is performance and profitability." The U.S. government is stuck in the neck to promote export restrictions on China's high-end GPUs, but there is no subsidy for Nvidia, which prompts Nvidia to actually help China, lobbying the U.S. government to relax or even lift the ban on GPUs to China, after all, Chinese mainland accounts for about a quarter of Nvidia's sources. “

According to financial data, if Chinese mainland plus Taiwan contributes nearly half of Nvidia's revenue, it also shows that the Chinese market is related to its development and decline. Looking at Huang's Asian orientation, although he did not visit Chinese mainland, he was almost everywhere for this hot land.

In late May, perhaps due to tensions in the Taiwan Strait, Huang shouted "the strongest voice" in an interview. He said, "The U.S. controls to thwart China's semiconductor industry have left Nvidia 'hand-tied' from selling advanced chips in the largest markets." If we lose the Chinese market, we don't have a contingency plan, there is only one China. He also said that Nvidia could theoretically make chips outside of Taiwan, but the Chinese mainland market could not be replaced.

This was followed by Huang's "whirlwind" visit to Taiwan, in which his meeting with Zhang Zhongmou was seen as one of the key motivations. At the time, it was rumored that he would continue to visit Chinese mainland, but eventually returned directly to the United States. According to some analysts, the situation in the Taiwan Strait is one of Huang's most concerns, but with the gradual improvement of China-US relations in the second half of 2023 and the continuous tightening of GPU export controls by the United States, Huang's public statements have gradually "softened", but he also continues to attack in a multi-dimensional global layout.

Or it is precisely because of Nvidia's "brilliance problem" that it avoids creating opportunities for Chinese competitors to enter the market. Following Huang's recent visit to three Southeast Asian countries and Japan, U.S. Commerce Secretary Raimondo said Nvidia "can, will, and should sell AI chips to China, because most AI chips will be for commercial use." And before that, she said, "If Nvidia takes some steps to redesign a chip so that China can implement an artificial intelligence project, I will take control measures the next day." ”

In this regard, Wang Huilian said, "Recently, the U.S. Department of Commerce criticized Nvidia by name for supplying chips exclusively for China, and at the same time guiding global resources to divide China, which shows the determination and persistence of the United States to suppress and cut the supply chain to China." For China, the uncertainty of the external environment will continue, and it will face tremendous development pressure. At present, the pace of Nvidia and international semiconductor giants in Southeast Asia and other regions is accelerating, which also forces some Chinese companies to follow up quickly in order to retain European and American customers and maintain their existing supply chain status. ”

(Proofreading/Zhang Yiqun)