Taiwan Semiconductor Manufacturing Company (TSMC), a leading producer of advanced computer chips, recently found that one of its chips was incorporated into a processor made by Huawei, a Chinese telecommunications firm subject to U.S. sanctions. The exact route of how the chip ended up with Huawei remains unclear, although it is known that a TSMC customer from China had placed orders for a processor with similar specifications.
In response, TSMC has decided to halt shipments of its most advanced chips to China while it reviews existing orders to ensure compliance with U.S. regulations, according to sources familiar with the situation who requested anonymity.
TSMC manufactures semiconductors for major tech companies, which design the chips that power a wide range of devices, including smartphones and electric vehicles. The U.S. government has long sought to prevent advanced chips, crucial for artificial intelligence applications, from reaching Chinese firms due to concerns about potential military uses.
Efforts by the U.S. have included blocking American companies like Nvidia from selling high-performance AI chips to China and persuading Japanese and Dutch manufacturers to cease supplying specialized equipment used in chip production.
However, U.S. regulations do not impose a total ban on TSMC producing chips for China. Instead, TSMC is required to verify that its Chinese customers do not request chips with advanced capabilities. The recent discovery of a TSMC chip in a Huawei device has raised concerns regarding TSMC's customer vetting processes.
TSMC's decision to review orders from certain Chinese clients coincided with Donald J. Trump winning a second term in office, during which he criticized U.S. subsidies for Taiwanese companies. TSMC was awarded $6.6 billion in April to build a factory in Arizona.
Experts indicate that determining a chip's power solely from its design is difficult, complicating TSMC's ability to ensure compliance with U.S. requirements.
While a significant portion of TSMC's revenue comes from North American companies like Apple and Nvidia, Chinese firms such as Baidu and Horizon Robotics represent a smaller yet significant segment of TSMC's business. Revenue from Chinese customers has nearly halved since the U.S. began tightening chip export regulations, dropping from 20 percent of TSMC's revenue in 2019 to 12 percent last year.
The U.S. Commerce Department, responsible for export controls, declined to comment on the matter.
In October 2023, new restrictions were placed on TSMC, mandating that the company verify that chip designs from China did not surpass specific parameters or obtain special licenses from the U.S. government. Sources indicated that the verification process had encountered issues.
TSMC stated that it adheres to legal requirements and has not supplied chips to Huawei since the implementation of U.S. restrictions, affirming its commitment to compliance with all relevant rules and regulations.