According to a report by Taiwan’s Commercial Times, NVIDIA is facing repercussions from the US chip restriction, leading to controls on the export of high-end AI GPU chips to certain countries in the Middle East. Although NVIDIA claims that these controls won’t have an immediate impact on its performance, and industry insiders in the Taiwanese supply chain believe the initial effects are minimal. However, looking at the past practice of prohibiting exports to China, this could potentially trigger another wave of preemptive stockpiling.

Industry sources from the supply chain note that following the US restrictions on exporting chips to China last year, the purchasing power of Chinese clients increased rather than decreased, resulting in a surge in demand for secondary-level and below chip products, setting off a wave of stockpiling.

Take NVIDIA’s previous generation A100 chip for instance. After the US implemented export restrictions on China, NVIDIA replaced it with the lower-tier A800 chip, which quickly became a sought-after product in the Chinese market, driving prices to surge. It’s reported that the A800 has seen a cumulative price increase of 60% from the start of the year to late August, and it remains one of the primary products ordered by major Chinese CSPs.

Furthermore, the recently launched L40S GPU server by NVIDIA in August has become a market focal point. While it may not match the performance of systems like HGX H100/A100 in large-scale AI algorithm training, it outperforms the A100 in AI inference or small-scale AI algorithm training. As the L40S GPU is positioned in the mid-to-low range, it is currently not included in the list of chips subject to export controls to China.

Supply chain insiders suggest that even if the control measures on exporting AI chips to the Middle East are further enforced, local clients are likely to turn to alternatives like the A800 and  L40S. However, with uncertainty about whether the US will extend the scope of controlled chip categories, this could potentially trigger another wave of purchasing and stockpiling.

The primary direct beneficiaries in this scenario are still the chip manufacturers. Within the Taiwanese supply chain, Wistron, which supplies chip brands in the AI server front-end GPU board sector, stands to gain. Taiwanese supply chain companies producing A800 series AI servers and the upcoming L40S GPU servers, such as Quanta, Inventec, Gigabyte, and ASUS, have the opportunity to benefit as well.

(Photo credit: NVIDIA)

According to a report by Taiwan’s Economic Daily, the latest GH200 module released by NVIDIA has seen its assembly orders exclusively undertaken by Foxconn, while the assembly orders for L40S are also entirely managed by Foxconn.

Foxconn has traditionally refrained from commenting on individual business and order dynamics. It is believed that AI chip modules constitute the highest-margin product within the entire server supply chain.

Foxconn has been a longstanding partner of NVIDIA, providing an end-to-end solution across chip modules, baseboards, motherboards, servers, and chassis. Foxconn’s capabilities have facilitated the creation of a comprehensive solution for NVIDIA’s AI server supply chain.

Previously, Foxconn had an exclusive assembly partnership with NVIDIA for the “H100” and “H800” modules, not only retaining the existing orders but also securing a substantial portion of the HGX module orders. Now, reports indicate that Foxconn will exclusively supply even NVIDIA’s newly unveiled GH 200, and the L40S.

Industry sources indicate that due to severe constraints on TSMC’s advanced CoWoS packaging capacity, the scaling up of NVIDIA’s AI chip production has been hindered. However, with new CoWoS production capacity set to gradually open up in the late third quarter to the fourth quarter, shipments of Foxconn’s AI chip modules are anticipated to rapidly increase.

Industry sources reveal that in business negotiations, NVIDIA is known for demanding from its suppliers, but it is also generous in its offerings. As long as suppliers provide products that meet or even exceed expectations, NVIDIA is willing to offer reasonable prices, fostering mutually beneficial relationships with its partners.

(Photo credit: NVIDIA)