TSMC, the world’s largest contract chip manufacturer, has informed its mainland Chinese customers that it will no longer process new orders for advanced chips. This decision, reported by the South China Morning Post, will be effective next week. It comes as the company navigates U.S. export restrictions that prevent high-tech chip technology from reaching Chinese firms.
Rising Pressure from U.S. Export Controls
The move follows revelations from a Canadian research group, which found that Huawei’s 910B AI processor contained TSMC-manufactured components. This discovery raised questions about potential violations of U.S. export regulations aimed at limiting China’s access to advanced semiconductor technology. TSMC, in response, asserted that it has complied with all trade laws and expressed its willingness to collaborate with the U.S. Commerce Department to review the situation.
Huawei denied current collaborations with TSMC, stating that it has not sourced chips from the Taiwanese firm since the U.S. government amended its rules in 2020. The Shenzhen-based tech giant maintains that its chip production adheres to international regulations.
Implications for Mainland Clients and Industry Response
Affected clients include Chinese firms like Sophgo, a developer of graphics processors. Sophgo assured that it has no business relationships with Huawei, either directly or indirectly. Industry analysts have pointed out that pausing orders for high-end chip manufacturing helps TSMC avoid regulatory risks, especially as U.S. scrutiny intensifies.
Revenue from Chinese clients made up 11% of TSMC’s total income for the last quarter, a figure notably lower than the 71% contributed by North American clients. Analysts argue that while the decision may impact TSMC’s market share in China, the company’s financial stability is anchored by its dominant position in North America.
TSMC and U.S. Investments: Navigating New Priorities
As TSMC refines its client strategy to align with U.S. trade policies, it is simultaneously enhancing its American partnerships. The company has finalized its CHIPS Act funding agreements, alongside GlobalFoundries, to secure over $13 billion in combined grants and loans.
TSMC’s share of this funding includes $6.6 billion in grants and $5 billion in loans. These funds support TSMC’s expansion in Arizona, where initial plans for two semiconductor fabs at a $40 billion budget have been increased to $65 billion to include a third fab. This new phase of investment comes as TSMC’s facility in Arizona, which manufactures Apple’s A16 Bionic chips, ramps up production. The fab employs a four-nanometer process, an advanced manufacturing technology essential for modern consumer electronics.
Technological Advancements and Future Plans
The TSMC fabs in Arizona will use a more refined two-nanometer node, expected to offer better performance and power efficiency. TSMC has also announced the inclusion of its NanoFlex technology in these facilities, which allows for varied circuit configurations, balancing power efficiency with performance improvements.
GlobalFoundries, the second major recipient of CHIPS Act funding, has allocated $1.5 billion to enhance its manufacturing capabilities in New York and Vermont. These investments are set to support the production of automotive chips and gallium nitride (GaN) semiconductors. GaN chips are valued for their resilience under high temperatures and voltages, making them ideal for use in electric vehicle charging equipment and other power-intensive applications.
Political and Economic Context: Taiwan’s Role in U.S. Tech Policy
Amid this shifting landscape, Taiwan’s significance to U.S. technology ambitions has been reinforced by recent political developments. Following Donald Trump’s re-election victory, Taiwan’s Foreign Minister Lin Chia-lung highlighted the strategic importance of TSMC and other Taiwanese tech firms in aiding the U.S. semiconductor industry. Lin pointed out that while Trump has previously criticized Taiwan for “stealing” the U.S. chip industry decades ago, his administration also initiated policies that bolstered U.S.-Taiwan ties, including arms sales and economic collaborations.
Taiwan’s defense budget has seen consistent growth, nearly doubling since 2016 under the current Democratic Progressive Party administration. This budget increase has supported ongoing U.S. defense contracts, with arms deliveries valued at approximately $20 billion still pending.
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