(Bloomberg) — Taiwan Semiconductor Manufacturing Co. discovered this month that chips it made for a specific customer at Huawei Technologies Co. ended up, a possible violation of US sanctions designed to cut off the flow of technology to a Chinese national champion.
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TSMC halted customer shipments around mid-October after realizing that semiconductors manufactured for that entity had found their way into Huawei products, a person with direct knowledge of the matter said. The chipmaker has since notified the U.S. and Taiwanese governments and is investigating the matter more thoroughly, the person said, asking not to be identified discussing a sensitive situation.
It is unclear whether the TSMC client was acting on behalf of Huawei, or where it is located. But the incident sheds new light on reports that have emerged in recent days, including from The Information, that Washington recently contacted TSMC about whether the company had produced chips for the blacklisted Chinese company.
TSMC’s discovery raises questions about how Huawei, considered China’s best hope to enter the semiconductor industry, got its hands on cutting-edge chips. Research firm TechInsights recently discovered that Huawei’s latest AI servers include processors made by TSMC, Nvidia Corp.’s main manufacturing partner.
Huawei has been on a sanctions list since 2020 and is not allowed to do business with TSMC and its chip manufacturers without a license from the US government. Over the past year, Huawei has relied on local partner Semiconductor Manufacturing International Corp. for production, including a 7-nanometer chip unveiled last August in a Huawei smartphone.
But US officials have questioned SMIC’s ability to make 7nm chips at scale. Huawei’s use of TSMC output for its latest AI chips could be a sign that strengthens that narrative. The Taiwanese chipmaker has said it has halted all shipments to Huawei after September 15, 2020, which the company reiterated when asked about the TechInsights report.
A TSMC representative declined to comment on the latest development. A Huawei spokesperson had no immediate comment when contacted by Bloomberg News. A spokesperson for the U.S. Department of Commerce said the agency’s Bureau of Industry and Security “is aware of reports of possible violations of U.S. export controls.”
“TSMC is a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls,” the company said in its emailed statement on Tuesday. “We have proactively communicated with the US Department of Commerce regarding the issue in the report. We are not aware of TSMC being the subject of any investigation at this time.”
In a separate statement, Huawei said on Tuesday that it “has not produced any chips through TSMC following the implementation of the changes the US Department of Commerce made to its FDPR targeting Huawei in 2020.” FDPR refers to the foreign direct product rule – a US trade restriction.
Republican Rep. John Moolenaar, chairman of the House China Select Committee, said Wednesday that reports of TSMC-made chips in Huawei devices “represent a catastrophic failure of U.S. export control policy.” He called for “immediate responses from both BIS and TSMC on the scale and scope of this disaster.”
Taiwan respects US export control measures and will fully communicate this to TSMC, Economic Affairs Minister JW Kuo told reporters on Wednesday.
BIS officials had met with TSMC executives in mid-October on issues related to the chipmaker’s supply chain, including whether third-party distributors could give China access to limited technology, according to another person familiar with the matter and who described the meeting as a collaboration. It was unclear whether they had discussed the client’s discovery.
AI accelerators – chips used to develop artificial intelligence models – have become a prized commodity in the technology industry.
Santa Clara, California-based Nvidia uses TSMC to produce its market-leading versions, which has boosted sales and appreciation over the past two years. The US has limited exports of advanced Nvidia chips to China, and Huawei is offering its accelerators as a domestic alternative.
Huawei’s 910 – the predecessor to the 910B – was in production in 2019, before the US government expanded sanctions against the Chinese telecom giant. Huawei stockpiled TSMC components around that time, allowing the company to use a TSMC 5-nm chip, a generation ahead of 7-nm, in a laptop released late last year.
–With help from Mackenzie Hawkins, Jane Lanhee Lee, and Jessica Sui.
