TSMC cuts off client after discovering its chips were sent to Huawei

TAIPEI – Taiwan Semiconductor Manufacturing Company (tsmc) discovered in October that chips it made for a specific customer ended up with Huawei Technologies, a potential violation of US sanctions intended to sever the flow of technology to a Chinese national champion.

TSMC halted shipments to the client around mid-October after it realised semiconductors fabricated for that entity had found their way into Huawei products, a person with direct knowledge of the matter said. The chipmaker has since notified the US and Taiwanese governments and is investigating the matter more thoroughly, the person said.

It is unclear whether the TSMC client was acting on Huawei’s behalf, or where it is based. But the incident sheds new light on reports that surfaced in past days, including from The Information, that Washington reached out to TSMC recently about whether the company had produced chips for the blacklisted Chinese company.

TSMC’s discovery raises questions about how Huawei, considered China’s best hope of ascending the semiconductor industry, got its hands on advanced chips. Research firm TechInsights recently discovered that Huawei’s latest artificial intelligence (AI) servers contained processors made by TSMC, Nvidia’s most important manufacturing partner.

Huawei has been on a sanctions list

since 2020 and is barred from doing business with TSMC and its chipmaking peers without a US government licence. In the past year, Huawei has relied on local partner Semiconductor Manufacturing International Corporation (SMIC) for production, including a 7 nanometre (nm) chip unveiled in August 2023 in a Huawei smartphone. 

But US officials have questioned SMIC’s ability to make 7nm chips at scale. Huawei’s use of TSMC output for its latest AI chips may be a sign that reinforces that narrative. The Taiwanese chipmaker has said it stopped all shipments to Huawei after Sept 15, 2020, which the company reiterated when asked about the TechInsights report.

“TSMC is a law-abiding company, and we are committed to complying with all applicable rules and regulations, including applicable export controls,” the company said in its e-mailed statement on Oct 22. “We proactively communicated with the US Commerce Department regarding the matter in the report. We are not aware of TSMC being the subject of any investigation at this time.”

In a separate statement, Huawei said on Oct 22 that it has not “produced any chips via TSMC after the implementation of the amendments made by the US Department of Commerce to its FDPR that target Huawei in 2020”. FDPR refers to the foreign direct product rule – a US trade restriction. 

Republican Representative John Moolenaar, chairman of the House China Select Committee, said on Oct 23 that reports of TSMC-made chips in Huawei devices “represent a catastrophic failure of US export control policy”. He called for “immediate answers from both the US Bureau of Industry and Security and TSMC about the scope and volume of this disaster”.

Taiwan respects US export control measures and will communicate this fully to TSMC, Taiwan’s Minister of Economic Affairs J.W. Kuo told reporters on Oct 23.

AI accelerators – chips used to develop AI models – have become a prized commodity in the tech industry. 

Nvidia uses TSMC to produce its market-leading versions, driving its sales and valuation in the past two years. The US has limited exports of cutting-edge Nvidia chips to China, and Huawei is offering its accelerators as a domestic alternative. BLOOMBERG