TSMC Warns of Limits of Ability to Keep Its AI Chips From China

The Taiwan Semiconductor Manufacturing Co. campus in Hsinchu, Taiwan. Photographer: An Rong Xu/Bloomberg Photo by An Rong Xu /Bloomberg

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(Bloomberg) — Taiwan Semiconductor Manufacturing Co. listed the challenges of ensuring export control compliance by its customers, months after the company’s artificial intelligence silicon was found to have flowed to US-sanctioned Huawei Technologies Co. via intermediaries.  

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“TSMC’s role in the semiconductor supply chain inherently limits its visibility and information available to it regarding the downstream use or user of final products that incorporate semiconductors manufactured by it,” the Hsinchu, Taiwan-based company said in its latest annual report released on Friday. 

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The world’s largest contract chipmaker said the constraint impedes its ability to prevent unintended end-uses of its semiconductors, as well as diverted shipments by business partners and third parties intent on circumventing sanctions. 

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In terms of whether there are going to be compliance issues found, the go-to chipmaker for Apple Inc. and Nvidia Corp. said in the report there is “no assurance,” despite TSMC’s best efforts to abide by relevant export control regulations. 

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TSMC provides manufacturing services to many so-called fabless firms and chip designers including Nvidia. Very often the semiconductors it customizes for those companies will end up being incorporated in gadgets and devices made by third parties, most often for legitimate purposes. For instance, both Qualcomm Inc. and MediaTek Inc. work with TSMC to make mobile chips used by phone makers including Xiaomi Corp.

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However, an investigation by Canada-based research firm TechInsights last year showed that Huawei’s Ascend 910B AI chip contained semiconductors by TSMC. The chipmaker halted shipments to a client around the same time after it found out the semiconductors it made for the customer ended up with Huawei. 

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TSMC alluded to the incident in the annual report and said it notified Washington and Taipei in October that a chip it made for a customer might have been diverted to a restricted entity. The chipmaker added it has been cooperating with authorities’ requests for additional information and documents. 

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The Trump administration has followed the footsteps of former US President Joe Biden in crimping the flow of advanced technologies to China out of national security concerns. 

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The US earlier this month unveiled a fresh round of regulations to tighten China’s access to advanced AI chips. Earlier this year, Washington called for chip producers like TSMC and Samsung Electronics Co. to step up their scrutiny and due diligence of customers, especially Chinese firms. US officials simultaneously blacklisted 16 Chinese companies including Sophgo Technologies Ltd., which was allegedly involved in Huawei getting access to TSMC chips last year. 

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Together with Sophgo, the US also added PowerAir Pte to the entity list after the South China Morning Post reported concerns about the Singapore-based company’s possible involvement in diverting TSMC chips to Huawei. 

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