TSMC Halts Advanced AI Chip Production for China Amid US Restrictions

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On Sat, 9 Nov, 12:02 AM UTC

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Taiwan Semiconductor Manufacturing Company (TSMC) stops producing advanced AI chips for Chinese customers following US export controls, impacting China's AI ambitions and raising concerns about global semiconductor supply chains.

TSMC Complies with US Restrictions on AI Chip Sales to China

Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, has announced it will halt the production of advanced AI chips for Chinese customers starting Monday, November 20, 2023. This decision comes in response to mounting pressure from the United States government to restrict China's access to cutting-edge semiconductor technology 1.

Impact on Chinese Tech Companies

The new restrictions target chips manufactured using 7-nanometer or more advanced processes, which are crucial for AI and graphics processing capabilities. This move is expected to significantly impact Chinese tech giants such as Alibaba and Baidu, who have heavily invested in designing semiconductors for their AI cloud services 5.

Baidu's Kunlun II processor, manufactured by TSMC using 7-nanometer technology, is particularly affected. The company had been developing these chips to support its AI business, including large model inference and training capabilities 5.

TSMC's Compliance and Market Position

TSMC has confirmed its commitment to complying with international laws and export controls. The company's decision is driven by a combination of factors, including the need to improve internal controls following an ongoing probe into how its chips ended up in a Huawei AI device, and anticipation of further US export controls 4.

Despite the restrictions, TSMC's revenue is not expected to be significantly impacted. In October 2023, the company reported a 29.2% increase in revenue to NT$314 billion ($9.8 billion) 5.

US Government's Role and Future Implications

The U.S. Department of Commerce has been instrumental in implementing these restrictions, reflecting ongoing efforts to limit China's access to vital technological resources. The move follows similar restrictions imposed on Nvidia and AMD in 2022, which were later formalized into rules 3.

Analysts suggest that TSMC may seek flexibility in areas less impacted by the restrictions, given that mainland China accounted for 11% of the company's third-quarter revenue 1.

Global Semiconductor Industry Dynamics

The restrictions on TSMC highlight the complex geopolitical landscape of the global semiconductor industry. Other major players, such as ASML Holding NV, face similar challenges in balancing regulatory compliance with market demands 1.

Meanwhile, China has been working to reduce its reliance on foreign suppliers. The country's domestic chip production has surged, with self-sufficiency rising from about 33% in 2013 to almost 80% by mid-2024 1.

TSMC's US Investments and Political Considerations

Despite the tensions, TSMC has reaffirmed its commitment to a $65 billion investment in the United States, including advanced chip production facilities in Arizona. The company is proceeding with these plans despite potential political uncertainties, such as Donald Trump's critical remarks about Taiwan's semiconductor role 1.

TSMC's decision to implement these restrictions is partly seen as a proactive measure to demonstrate compliance with US interests, especially in light of potential scrutiny from a future Trump administration 5.

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