Taiwan Semiconductor Manufacturing Corp. (TSMC) has halted shipments to Chinese chip firm Sophgo, following the discovery of one of its chips on a Huawei AI processor, sources say. TSMC flagged a suspicious order last week, reporting that the chip resembled Huawei’s Ascend 910B AI model, triggering an investigation by the U.S. Commerce Department. This probe focuses on whether TSMC breached export controls intended to limit Huawei’s access to American technology.
The U.S. restrictions prohibit foreign-made chips created with U.S.-origin technology from being sold to Huawei, making the situation with TSMC especially sensitive. Sources have confirmed that TSMC raised red flags about the chip order, reportedly for AI model training—a high-performance process requiring advanced semiconductors. According to industry reports, U.S. authorities are now examining the supply chain to determine if TSMC or others facilitated Huawei’s access to this restricted tech.
Sophgo Denies Links with Huawei
Sophgo, which ordered the chip, has issued a statement distancing itself from Huawei. As an affiliate of Bitmain, a Chinese maker of cryptocurrency mining hardware, Sophgo insisted it has no business relationship with Huawei and complies with all relevant laws. The company stated that it submitted a full investigation report to TSMC to prove its independence from Huawei’s operations. Despite these denials, the investigation into TSMC’s role remains active, with the U.S. Commerce Department reviewing the potential export control breach.
Sophgo’s relationship with Bitmain has drawn additional scrutiny due to previous legal issues. In 2021, Taiwanese prosecutors charged Bitmain affiliates with illegally recruiting Taiwanese engineers, which adds a complex layer to Sophgo’s claim of complete compliance. If further evidence reveals indirect links to Huawei, it could exacerbate the tensions surrounding U.S.-China tech relations.
Huawei’s Supply Chain Tactics and the Role of SMIC
Meanwhile, Huawei’s recent releases, including the Mate 60 smartphone, have continued to stir controversy. The smartphone reportedly features advanced 7nm chips developed by China’s Semiconductor Manufacturing International Corporation (SMIC). Manufactured in a 7-nanometer process, these chips are central to Huawei’s AI ambitions, allowing for increased processing power and efficiency needed in high-performance tasks like AI model training. Since the U.S. enacted strict export controls, Huawei has pivoted toward domestic sources like SMIC while reportedly working with intermediary firms to navigate restrictions.
Additional firms such as Pengzinzu and SwaySure Technology have also been identified as potential intermediaries, allegedly working to help Huawei access restricted technology without direct procurement from U.S.-affiliated companies. The House China Select Committee recently highlighted these companies in a letter addressing Huawei’s ongoing efforts to sidestep export controls. With Huawei’s new devices under scrutiny, U.S. lawmakers have called for stricter regulatory oversight, fearing that AI-driven chips could support dual-use technologies, impacting military and defense areas.
U.S. Semiconductor Controls and Global Implications for TSMC
The probe into TSMC’s actions isn’t isolated—it’s part of a broader strategy by the U.S. to curtail China’s access to advanced technologies, particularly in the semiconductor sector. By collaborating with allied countries like Japan and the Netherlands, the U.S. has created a network of export restrictions focused on limiting China’s technological capabilities in AI and quantum computing. China has faced challenges sourcing high-performance components needed for training complex AI models, a crucial area in which the U.S. seeks to maintain a competitive edge.
Reflecting on these shifts in trade dynamics, TSMC founder Morris Chang this week commented, “The era of free trade and globalization is nearing its end.” He went on to call the current situation “the most severe challenge” TSMC has ever faced, noting the unique position the company occupies as it navigates growing international restrictions and rising demands from U.S. clients.
TSMC, a pivotal figure in the global semiconductor landscape, finds itself under intense scrutiny. While the company has halted all Huawei-related orders since 2020, it also stands at the center of the U.S. semiconductor supply chain. With prominent clients like Nvidia, Apple, and Qualcomm, TSMC’s role in AI chip manufacturing makes it integral to various industries reliant on advanced chip technologies.
TSMC’s Future in the U.S. and Expanding AI Chip Market
Amid the controversy, TSMC’s expansion in the U.S. market has added weight to the situation. Currently, TSMC is building chip facilities in Arizona, with a U.S. government-backed subsidy of $6.6 billion on the line. Any proven compliance issue with U.S. export restrictions could endanger this support, stalling TSMC’s plans. The Arizona project is one of several moves TSMC has made to align itself with U.S. interests, strengthening its position in the AI chip sector.
Adding to its AI ambitions, TSMC recently announced a partnership with OpenAI to develop custom AI processors using its advanced A16 node. Expected to go into mass production by 2026, these chips are designed to enhance OpenAI’s own infrastructure, reducing its reliance on outside suppliers. The collaboration underscores TSMC’s strategic pivot toward the AI market, which has become increasingly central to both U.S. and Chinese tech agendas.
AI Competition and TSMC’s Role in the U.S.-China Tech Battle
TSMC’s involvement in AI chip production and its partnerships with top U.S. tech firms like Nvidia, Apple, and OpenAI highlight its role in the growing tech rivalry between the U.S. and China. As American companies continue to lead generative AI development, Chinese entities—many state-backed—are racing to catch up, narrowing the technological gap. Analysts suggest that China may be only six months to two years behind the U.S. in AI advancements, supported by the rapid rise in Chinese AI patent filings, which outpaced U.S. filings by a factor of two in recent years.
As the U.S. works to contain China’s AI growth, Silicon Valley remains at the forefront of these developments. U.S.-based tech companies continue to push the boundaries of AI research, while Chinese advancements are largely state-driven, shaped by national funding and strategic goals. In this context, the stakes for companies like TSMC couldn’t be higher, with the outcome of this investigation poised to influence the future of AI and semiconductor industries across the globe.
Last Updated on November 7, 2024 2:19 pm CET
