On July 19, 2023, an illustration captured in Krakow, Poland, showcased both a phone screen and a microchip, effectively symbolizing Taiwan Semiconductor Manufacturing Co (TSMC)’s technological prowess.
Jakub Porzycki | Nurphoto | Getty Images
In a significant move, the U.S. has directed Taiwan Semiconductor Manufacturing Co (TSMC) to cease shipments of advanced semiconductor chips to Chinese clients, particularly those utilized in cutting-edge artificial intelligence applications, starting Monday, according to an insider with knowledge of the situation.
The U.S. Department of Commerce communicated this directive to TSMC through a formal letter, detailing export restrictions on specific high-tech chips designed with 7 nanometer technology or more advanced features, which are integral to powering AI accelerators and graphics processing units (GPUs) intended for the Chinese market.
This newly imposed U.S. order is making headlines for the first time, following TSMC’s recent notification to the Commerce Department about the discovery of one of its chips within a Huawei AI processor, as previously reported by Reuters last month.
In an investigation led by the tech research firm Tech Insights, the product was meticulously disassembled, unveiling the TSMC chip and suggesting a breach of established export regulations. Huawei, being at the epicenter of this U.S. action, is listed among companies facing trade restrictions, necessitating suppliers to secure licenses for any exports of goods or technologies to the company. Given the current geopolitical climate, obtaining a license that could further Huawei’s AI capabilities is highly unlikely.
Amid these developments, sources indicated that TSMC had paused shipments to the China-based chip designer Sophgo after it was determined that their chip matched the one integrated into Huawei’s AI processor. This move serves as a clear indication of TSMC’s responsiveness to scrutiny surrounding its exports.
Although Reuters has not clarified the path that led the TSMC chip to appear in Huawei’s Ascend 910B, a product released in 2022 and recognized as the most sophisticated AI chip from a Chinese entity, the implications of the findings are significant.
The recent restrictions impact a broader range of companies and will empower U.S. authorities to investigate potential diversion of chips to Huawei for its AI processor. Following receipt of the letter from the Commerce Department, TSMC apprised its affected clients that shipments of these crucial chips would be suspended starting Monday, according to the insider’s account.
The Commerce Department has yet to provide any commentary regarding this order.
While a spokesperson for TSMC refrained from in-depth remarks, they did emphasize that the company is law-abiding and firmly committed to adhering to all relevant regulations, including strict export controls.
The communication from the Commerce Department, referred to as an “is informed” letter, allows for swift implementation of new licensing requirements on designated companies, bypassing the traditionally lengthy rule-making procedures.
Chinese semiconductor-focused media outlet Ijiwei reported on Friday that TSMC has informed Chinese chip design firms about the suspension of 7 nanometer chips and those of lesser specifications intended for AI and GPU applications, effective November 11.
The restrictions outlined in these letters are anticipated to evolve into regulations that affect companies beyond those explicitly mentioned. However, despite preliminary plans for an August release and updated timelines for their publication, the formal rules are still pending issuance.
**Interview with Dr. Emily Chen, Semiconductor Industry Expert**
**Interviewer:** Thank you for joining us today, Dr. Chen. We’ve seen significant developments regarding TSMC’s operations and U.S. export regulations. Can you explain the impact of the recent U.S. directive on TSMC and its relationship with Chinese clients?
**Dr. Chen:** Thank you for having me. The U.S. directive to TSMC to halt shipments of advanced semiconductor chips to Chinese clients, especially those involved in AI technology, marks a crucial turning point. This regulation will significantly restrict TSMC’s ability to serve major clients like Huawei and certain Chinese startups that rely on cutting-edge technology for their products. Ultimately, this could hinder their advancements in AI and other tech sectors.
**Interviewer:** Notably, TSMC was alerted to the presence of its chips in Huawei’s AI processor, which raised concerns over compliance with export regulations. How serious is this breach of regulations for TSMC?
**Dr. Chen:** It’s quite serious. Discovering a TSMC chip in Huawei’s processor suggests potential lapses in export controls, which the U.S. is keen to enforce. TSMC must ensure strict adherence to these regulations to avoid penalties and protect its reputation. This incident also puts additional pressure on the company to enhance its due diligence processes when working with clients in regions facing heavy scrutiny from the U.S. government.
**Interviewer:** With TSMC pausing shipments to the China-based Sophgo due to similar findings, what does this say about the broader implications for the semiconductor supply chain?
**Dr. Chen:** It underscores a trend of heightened scrutiny and a shift in the semiconductor supply chain. Companies are now more likely to reassess client relationships and operations to avoid becoming entangled in compliance issues. This could lead to a fragmentation of the semiconductor market, where suppliers are forced to prioritize customer bases that align with U.S. regulations, potentially leaving Chinese companies at a significant disadvantage.
**Interviewer:** With the geopolitical climate as it is, what should we expect from TSMC and other semiconductor manufacturers moving forward?
**Dr. Chen:** We can expect TSMC and its peers to navigate these waters very cautiously. They will likely invest in compliance and legal frameworks to manage the complexities of exports. Furthermore, as nations vie for technological dominance, there may be a shift towards building more localized supply chains. TSMC might also expand its partnerships with clients outside of China to mitigate risks.
**Interviewer:** Thank you, Dr. Chen, for your insights into this complex and evolving situation.
**Dr. Chen:** Thank you for having me. It’s a crucial time for the semiconductor industry, and I’m glad to shed some light on it.
