NVIDIA’s quarterly revenue last week came with a large dose of negative news: $ 4.5 billion chip recording originally designed for customers in China, which will eventually remain inaccessible.
The company has developed the so-called H20 chips, which are less powerful than its best semiconductors to comply with the rules of Biden’s administration against sending technologies to foreign opponents who could help their efforts on II. The Trump administration, however, went a step ahead in early April and banned exports to the second level.
“We are unsubscribing a multi -billion -dollar inventory that cannot be sold or reconciled,” said NVIDIA Jensen Huang Executive Director when a profit call on May 28.
The details of the decision to write the value of the chips to zero – earlier than to sell them to other customers – were not explained. The company added, without specifying that this is a “research of limited options” for unused inventory, a move that will obviously get away with the sale of the chips.
The H20 was built specifically for the China market under the old export rules. Due to the design of the chip and limited capabilities, it can be difficult to use in other countries. “It doesn’t really fit anywhere without a very expensive fix,” says Arash Azadegan, a professor of supply chain management at the Rutgers Business School.
This setup may include additional NVIDIA costs. In addition, some of the chips may “do not meet customer performance needs in other regions” or may be designed “specific to Chinese requests or demands of customers,” says Chad Dzhd, Professor of the Tennessee Delivery Chain.
Even if she could sell the chips by reducing their price, Nvidia would risk damaging her image as a highest-level innovation seller. In the end, the new Blackwell graphics processors of the company, AI AI, as the Openai GPT-5 model. “Nvidia probably doesn’t want to pour the discount market – can get their prices, confuse customers, and distract their big impetus to the more Blackwell composition,” says Azadegan, relying on the new AWS AWS AWSE products.
Nvidia declined to comment beyond what its leaders said during the company’s profit call last week.
After the China -based Deepseek launched its Chatgpt opponent in January, large Chinese companies like Alibaba, Bytedance and Tencent have purchased NVIDIA H20 Chips, Reuters reported in February. These companies have probably developed powerful AI capabilities using H20 chips, so there is little reason to believe that US companies can’t do the same if NVIDIA sell H20 for them.
But customers based in NVIDIA and the United States are probably not interested in this, says Matthew Bryson, managing director of Wedbush Securities, which covers NVIDIA. “The reason why these products go to China is that everyone would choose something better.” Bryson explains that the technology that underlies the H20 “would never be made” if it is not intentionally designed to prevent Chinese companies from building models similar to sophisticated AI applications created by the United States. And if NVIDIA sells the chips with a big discount to reflect their market value in the United States, it can “cannibalize” sales of better products, he says.
Initially, Nvidia was expecting to write a $ 5.5 billion inventory for a chip from its balance. But he managed to save about $ 1 billion in a H20 inventory from. “[reusing] Certain materials “, reducing the realized write -off from the first quarter to $ 4.5 billion, said Chief Financial Officer Colet Cress Cress at last week’s profit.
Not surprisingly, she noted that as a result of the new rule of export of Trump administration, NVIDIA will take a blow from the revenue from Trump’s ban in China in the first half of the year. The company has booked a $ 2.5 billion loss at first quarter revenue and forecast a higher losing of $ 8 billion in revenue in the second.
The question remains what is happening with this H20 stock. Delivery chain experts interviewed by Fortune You suspect it will be thrown away. “These chips will meet with the Cool Lava Lamp you have received from your aunt at a depot,” writes Alan Amlling, Professor of Delivery Chain at the University of Tennessee at Haslam in Business College, Yes Fortune by email. “With so many other growth options, the possible cost of rearranging, re -testing and requisition of these chips were obviously too high a bar.”
Because of how quickly the new export rules under Trump are not sold, the H20 is not sold at the US places such as Taiwan and Hong Kong, Autry told the University of Tennessee. Taiwan -based TSMC produces a large part of the NVIDIA inventory, designed for customers based in China and the NVIDIA performance partners are in nearby countries.
Welling the H20 chips has had a minimal short -term impact on NVIDIA’s otherwise boom business. Nvidia reported the first quarter of $ 44.1 billion (69% compared to the year) and $ 18.8 billion net income, which is a healthy net profit of 42.6%.
The recording of the full value of the chips provides immediate tax relief by reducing the company’s taxable income. Depending on the future prospects and sales costs of NVIDIA, this benefit may exceed or approach the financial benefit of selling chips with a steep discount.
“Nvidia will be fine; Nvidia’s investors will be fine,” Azadegan says of Rutgers. “True story,” he said, is that Nvidia’s production partners such as TSMC and suppliers, including Samsung and Micron, may be the most overwhelmed by the H20 inventory, as they have built businesses by serving critical functions in the NVIDIA supply chain. The size of the impact on these partners will be determined in the coming months and years, Azadegan notes. “It’s never a penny we can spin.”
Piper Sandler’s NVIDIA HARSH KUMAR analyst hopes Trump ultimately cancels the blockade of H20 chips to China. If so, NVIDIA can finally end the sales of H20 or deliver the chips to new customers in China, assuming that the company is holding on the H20 inventory. It is unclear how realistic this scenario is after the Trump administration appealed the imposed judge of a block of his tariffs on the “Liberation Day”.
Still, the new ban on Trump’s exports does not allow Nvidia to deliver chips to China for national security reasons, so it can have almost no connection to its tariff program. “To me, it almost implied that there was a way that Jenson [Huang] And NVIDIA make sure this H20 chip will be sold back in China, “Kumar told FortunePotentially helping to drive the company’s already high reserves to greater heights in the future.
This story was originally presented on Fortune.com
