U.S. Halts TSMC Chip Shipments to China for AI Use

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U.S. Halts TSMC Chip Shipments to China for AI Use

The United States has instructed Taiwan Semiconductor Manufacturing Co. (NASDAQ: TSMC) to halt shipments of advanced chips often used in artificial intelligence (AI) applications to Chinese customers starting Monday.

This order was issued by the Department of Commerce and imposes export restrictions on sophisticated chips with 7-nanometer or more advanced designs to China. These chips are critical for AI accelerators and graphics processing units (GPUs).

This new directive follows an incident reported last month, where TSMC informed the Department of Commerce that one of its chips was identified in a Huawei AI processor. This finding, made by the tech research firm Tech Insights, which dissected the product and discovered the TSMC chip, raised concerns of a potential export control violation.

Huawei, at the center of the U.S. action, is on the restricted trade list. Suppliers are required to obtain licenses to send any goods or technology to Huawei, and any licenses that would assist Huawei’s AI capabilities are likely to be denied.

Following the Department of Commerce's letter, TSMC informed its affected customers that chip shipments would be suspended starting Monday. This restriction is not limited to a single company and allows the U.S. to assess whether other firms have redirected chips for Huawei's AI processors.

The Taiwanese chipmaker expressed its commitment to comply with both local and international regulations, including applicable export controls. The U.S. Department of Commerce declined to comment on the matter. This action by the U.S. government allows for the rapid introduction of new licensing requirements for specific companies, bypassing the comprehensive rulemaking process.

The decision has raised concerns among both Republican and Democratic lawmakers regarding the adequacy of export controls against China and the enforcement of these controls by the Department of Commerce. Last year, similar restrictions were imposed on Nvidia (NASDAQ: NVDA) and AMD (NASDAQ: AMD), limiting their ability to export top AI-related chips to China. Equipment manufacturers such as Lam Research (NASDAQ: LRCX), Applied Materials (NASDAQ: AMAT), and KLA are also facing restrictions on providing tools for advanced chip manufacturing in China.

The U.S. has lagged in updating its technology export rules towards China. Although new rules regarding the export of chip-making equipment and plans to add numerous Chinese entities to the restricted list have been drafted, the rules have not yet been officially published.