Huawei readies new chip to challenge Nvidia, surmounting US sanctions

China’s Huawei Technologies is close to introducing a new chip for artificial intelligence use, overcoming U.S. sanctions to challenge Nvidia in the Chinese market.

Chinese internet companies and telecommunications operators have been testing Huawei’s latest processor, called Ascend 910C, in recent weeks, according to people familiar with the matter. Huawei told potential clients that the new chip is comparable to Nvidia’s H100, which was introduced last year and isn’t directly available in China, the people said.

Huawei’s ability to keep advancing in chips is the latest sign of how the company has managed to break through U.S.-erected obstacles and develop Chinese alternatives to products made by the U.S. and its allies. Aided by billions of dollars in state support, it has become a national champion in areas including AI and a key part of Beijing’s endeavor to “delete” American technologies.

Still, Huawei has run into production delays in its current chips, according to the people. It faces the prospect of further U.S. restrictions that could deprive it of machine components and the latest memory chips used in AI hardware.

Companies including TikTok parent ByteDance, search-engine giant Baidu and state-owned telecommunications carrier China Mobile are in early discussions about obtaining the 910C, the people said. Initial negotiations between Huawei and potential customers indicate that orders are likely to surpass 70,000 chips, with a total value of around $2 billion, they said.

Huawei aims to start shipping as soon as October, the people said. They cautioned that final purchases may differ from initial plans and the delivery schedule may change. A Huawei representative declined to comment.

Huawei has been on the U.S. entity list since 2019, signifying that Washington considers the company a national-security threat. That has blocked it from using factories in places such as Taiwan to manufacture its chips and hindered access to critical components and manufacturing equipment.

China is stepping up support for semiconductor manufacturing and in May raised $48 billion in the third installment of a national investment fund for the industry.

Huawei’s new AI chip seeks to fill a void left by Nvidia after U.S. export controls beginning 2022 effectively prevented the Santa Clara, Calif.-based company from offering its most advanced chips to Chinese customers. Nvidia continues to create less-powerful variants for China that comply with the export rules, although some in China have found ways to obtain its more powerful chips through other means.

Chinese customers buying from Nvidia have to make do with the H20, a downgraded version of its AI chips, which Nvidia designed to clear Washington’s rules for selling to China and introduced this spring.

In the U.S., by contrast, Nvidia clients such as OpenAI, Amazon and Google will soon have access to the company’s latest Blackwell chips and the GB200 line of hardware powered by them, which Nvidia has described as several times more powerful than its existing hardware.

Nvidia is working on another China-oriented chip called B20, but the design might have trouble getting U.S. approval for China export if the White House tightens its rules, said people familiar with the matter.

Dylan Patel, an analyst at industry research firm SemiAnalysis, said he viewed Huawei’s 910C as an advance that could perform better than Nvidia’s B20.

If Huawei can produce its new chip successfully and Nvidia is still blocked from offering advanced chips to Chinese customers, he said, “Nvidia would lose market share rapidly in China.”

SemiAnalysis says Huawei could produce 1.3 million to 1.4 million 910C chips next year if it doesn’t face additional U.S. restrictions.

Initially Chinese customers weren’t enthusiastic about Nvidia’s H20 because they weren’t sure it was significantly better than Huawei’s latest offering, The Wall Street Journal reported.

However, some clients ramped up H20 orders after tests of bigger H20 clusters produced favorable performance results and Nvidia cut prices, people familiar with the matter said. Huawei’s production bottlenecks also played a role.

SemiAnalysis estimated in July that Nvidia would sell over one million H20 chips in China this year, valued at some $12 billion. The number of chips sold would be almost twice as many as Huawei is expected to sell of its 910B, SemiAnalysis said.

The U.S. sanctions are behind some delays this year in shipments of the Ascend 910B, currently Huawei’s most advanced AI processor, people familiar with the matter said.

In recent weeks, Huawei has started stockpiling high-bandwidth memory chips, used for state-of-the-art AI processors, in response to potential U.S. curbs on China’s access to such chips, the people said. The U.S. Commerce Department frequently updates sanctions and export controls, and people in the industry expect further action this year.

Huawei has told its local contract manufacturer and suppliers to store more machine components, anticipating that production workarounds might shorten the life of some parts and it might have a harder time sourcing parts, the people said.

At a semiconductor industry conference in June, a Huawei executive said nearly half of China’s large language models were trained with Huawei’s chips. He said 910B’s performance has surpassed Nvidia’s A100 in training models.

A June analysis by the Center for Security and Emerging Technology, a Georgetown University policy research body, said the 910 series was competitive with the A100 but also faced significant problems including limited manufacturing capacity and low yield. It said the 910B chip has fewer active AI cores—key components for computation—compared with Huawei’s previous version, so it wasn’t a big improvement.

Write to Liza Lin at liza.lin@wsj.com and Raffaele Huang at raffaele.huang@wsj.com