According to two individuals familiar with the subject, Baidu (9888. HK) placed an order with Huawei (HWT.UL) for artificial intelligence processors this year, which is another indication that Chinese consumers are beginning to embrace the company’s goods as a substitute for Nvidia’s.

One of the individuals claimed that Baidu, one of China’s top artificial intelligence companies and the creator of the Ernie large language model (LLM), placed the order in August. This was before the government of the United States tightened restrictions on chip exports to China in October, which included chips from Nvidia (NVDA.O.), one of the country’s largest chip companies.

The source stated that Baidu ordered 1,600 of Huawei Technologies’ 910B Ascend AI processors, which the Chinese company created as a substitute for Nvidia’s A100 chip, for 200 servers. By October, the source added, Huawei had sent more than 60% of the order, or around 1,000 chips, to Baidu.

The second source stated that Huawei was scheduled to supply all of the chips by the end of this year, with a total estimated value of 450 million yuan ($61.83 million). Because the terms of the agreement were private, both parties chose not to give their names.

The sources claimed that while the order is small in comparison to the thousands of chips that leading Chinese IT companies have traditionally ordered from Nvidia, it is noteworthy because it demonstrates how some companies may decide to diverge from the American corporation.

Along with other Chinese competitors like Tencent (0700. HK) and Alibaba (9988. HK), Baidu has a well-established clientele at Nvidia. It was previously unknown that Baidu was a Huawei customer for AI chips.

The initial source said that Huawei’s Ascend processors were the most advanced local choice in China, even though they are still performing significantly worse than Nvidia’s.

“They were ordering 910B chips to prepare for a future where they may no longer be able to purchase from Nvidia,” according to the initial source. Huawei and Baidu did not reply to messages seeking comment. Nvidia chose not to respond. According to Huawei’s website, the company has been working with Baidu since 2020 to make its AI platform compatible with Huawei technology. The two businesses announced in August that they would improve the interoperability of Huawei’s Ascend CPUs with Baidu’s Ernie AI model.

Although the business claims that its Kunlun AI processors offer large-scale AI processing, Baidu has mainly used Nvidia’s A100 CPU to train its LLM. Nvidia released new A800 and H800 processors as alternatives for Chinese clients, including Baidu, after the U.S. enacted regulations last year that prevented the firm from shipping its A100 and H100 chips to China. The October regulations prevent Nvidia from selling such chips to China anymore.

HUAWEI OPPORTUNITY

Last month, analysts projected that Huawei would be able to grow in its $7 billion domestic market as a result of the U.S. limits. U.S. export limits have been in place for the corporation since 2019.

The directive is another example of Huawei’s technical progress. Beijing invests heavily in the country’s semiconductor sector to help it catch up to international competitors and encourages state-owned companies to switch from imported technology to indigenous products.

When Huawei unexpectedly introduced a new smartphone in August, experts believed it used internally produced CPUs with cutting-edge semiconductor technology, showing its success in chip research despite sanctions. This announcement garnered significant interest from around the world.

Another indication of a resurgence, Reuters revealed in September that Huawei’s chip design unit, HiSilicon, has started shipping freshly built Chinese-made security camera processors to customers in 2023.