Taiwan Semiconductor Manufacturing Company, the maker of most of the world’s cutting-edge computer chips, discovered last month that one of its chips had ended up precisely where policymakers in the United States did not want it: in a processor made by Huawei.
It is not clear exactly how the chip was routed to Huawei, a Chinese telecommunications firm under U.S. sanctions, but a TSMC customer from China had placed orders with TSMC for a processor with the same design and specifications.
Now, TSMC will stop sending its most advanced chips to China while it reviews orders to make sure they comply with U.S. regulations, according to two people familiar with the matter who were not authorized to speak publicly.
The world’s biggest tech companies contract with TSMC to manufacture semiconductors, the tiny pieces of silicon with billions of circuits etched onto their surface that power everything from iPhones to electric cars. TSMC works from specifications designed by its customers, who then sell to their own clients.
The U.S. government has tried for years to keep the most advanced chips, which are essential for artificial intelligence systems, out of the hands of Chinese companies over concerns they could be used for military purposes.
It has blocked American companies like Nvidia from selling powerful A.I. chips in China and urged Japanese and Dutch firms to stop selling to China the specialized machines used to manufacture the chips.
But the U.S. rules do not pose a blanket ban on TSMC making chips for sale to China. Instead, the regulations say the Taiwanese chip maker must verify that its Chinese customers have not requested any chips with powerful capabilities.
The discovery last month of one of its chips in the Huawei device raised questions about how TSMC vets its customers.
TSMC’s plan to stop and review orders from some Chinese buyers was reported online in China only days after Donald J. Trump won his second term in office. The president-elect has previously said that U.S. subsidies for Taiwanese companies were a bad idea, because Taiwan had already grown to dominate the chip industry at the expense of American rivals. In April, TSMC was awarded $6.6 billion to build a factory in Arizona.
Experts say it is hard to know exactly how powerful a chip will be on the basis of its design alone, making it challenging for TSMC to verify that the chips its Chinese customers order meet the U.S. requirements.
Most of TSMC’s revenue comes from North American companies, including Apple and Nvidia, the world’s largest corporations. But Chinese firms like Baidu, a technology giant that makes artificial intelligence systems, and Horizon Robotics, an autonomous driving software company, have remained a small but important part of the Taiwanese chip maker’s business.
TSMC’s revenue from Chinese companies has been nearly cut in half since the U.S. government started to crack down on chip exports. In 2019, 20 percent of TSMC’s revenue came from China. Last year, it was down to 12 percent.
The Commerce Department, which oversees U.S. export controls, declined to comment.
The U.S. government put restrictions on TSMC in October 2023 that required the company to verify that chip designs from China did not exceed certain parameters, or else obtain a special license from the U.S. government to make them, one of the people familiar with the requirements said. The intent was to require TSMC to verify if the chips exceeded certain thresholds, the person said, but that process had somehow broken down.
TSMC said in a statement that it was a law-abiding company and had not supplied chips to Huawei since the U.S. restrictions went into effect. “We are committed to complying with all applicable rules and regulations, including applicable export controls,” the company said.
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