Nvidia, the U.S.-based chipmaker, is gearing up for mass production of the H20 artificial intelligence (AI) chip designed specifically for China. This move comes in response to U.S. export regulations, with production slated to commence in the second quarter of 2024, according to sources familiar with the matter.

Originally scheduled for launch in November 2023, the H20 chip faced delays due to integration challenges reported by server manufacturers. While the initial production volume will be limited, Nvidia aims to prioritize major customer orders during the early phase.

Chinese companies have shown hesitancy in adopting the downgraded H20, exploring domestic alternatives amid concerns that the U.S. might further tighten restrictions. Last year, search engine leader Baidu shifted its preference from Nvidia to Huawei Technologies for AI chips, signaling a trend among Chinese companies.

In addition to the H20, Nvidia has plans for two other chips, the L20 and L2, to comply with the imposed restrictions, but their sale announcements are pending. The semiconductor giant, having launched a modified version of an advanced gaming chip in late December to meet new rules, sees these specialized chips as vital to maintaining its market share in China.

The H20, L20, and L2 chips retain most of Nvidia’s latest AI features but with reduced computing power to align with the imposed regulations, as per analysis by SemiAnalysis.

The development comes amid a peak in semiconductor deals in China, with the total AI market projected to reach $383.3 billion by 2030, indicating a 21% compound annual growth rate from 2022 to 2030, according to GlobalData’s Thematic Research: AI report for 2023.