BEIJING (Reuters) -Nvidia ( NVDA ) plans to release a downgraded version of its H20 artificial intelligence chip for China in the next two months, following U.S. export restrictions on the original model, three sources familiar with the matter told Reuters.

The U.S. chipmaker has notified major Chinese customers, including leading cloud computing providers, that it aims to release the modified H20 chip in July, two of the sources said.

The downgraded H20 represents Nvidia's ( NVDA ) latest attempt to maintain its presence in one of its most crucial markets in the face of Washington's expanding efforts to restrict China's access to advanced semiconductor technology.

The H20, which had been Nvidia's ( NVDA ) most powerful AI chip cleared for Chinese sales, was effectively blocked from the market after U.S. officials informed the company last month that the product would require an export license.

Nvidia ( NVDA ) has formulated new technical thresholds, which will guide the development of the modified chip designs. These specifications will result in significant downgrades from the original H20, including substantially reduced memory capacity, one of the sources said.

Another of the sources said downstream customers could potentially modify the module configuration to adjust the chip's performance levels.

Nvidia ( NVDA ) declined to comment. The U.S. Commerce Department did not immediately respond to a request for comment.

China accounted for $17 billion in revenue, or 13% of Nvidia's ( NVDA ) total sales, in the fiscal year ended January 26.

Highlighting the country's strategic importance, Nvidia ( NVDA ) CEO Jensen Huang visited Beijing last month, just days after U.S. officials announced the new export license requirements for the H20 chip.

During meetings with Chinese officials, Huang emphasised China's significance as a key market for the company.

The U.S. has restricted exports of Nvidia's ( NVDA ) most sophisticated chips to China since 2022, citing concerns about their potential military applications.

The H20 was introduced after Washington tightened export controls in October 2023.

Chinese technology giants including Tencent ( TCTZF ), Alibaba ( BABA ) and ByteDance, TikTok's parent company, stepped up H20 chip orders amid growing demand for cost-effective AI models from companies such as startup DeepSeek, Reuters reported early this year.

Nvidia ( NVDA ) had accumulated $18 billion worth of H20 orders since January, according to a Reuters report last month.