TSMC says it obeys export controls as US probes links to Huawei

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Taiwanese chipmaker TSMC said it was committed to complying with export controls following reports that it was being investigated on whether it manufactured artificial intelligence and smartphone chips for China’s Huawei Technologies.

TSMC, the world’s biggest contract chipmaker, was a key supplier for Huawei until 2020 when Washington introduced new rules that barred the firm from continuing to do so.

But, according to a report by The Information on Thursday, officials are now probing whether TSMC violated those rules, or failed to perform due diligence necessary to ensure Huawei couldn’t acquire its chips.

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The investigation is being led by the US Commerce Department, which has, over the past two years, expanded its export control rules to cut off the flow of advanced semiconductors and chipmaking technologies to China.

Officials are investigating whether TSMC manufactured smartphone chips for Huawei’s devices, especially the Mate 60 series which caught the smartphone market by surprise, considering the US-sanctioned firm was teetering on the edge of survival.

They are also looking into whether TSMC was producing AI server chips designed by Huawei. That would include any indirect sales, potentially through intermediary companies, The Information reported citing sources with direct knowledge on the matter.

As part of that, officials are investigating whether TSMC put adequate checks in place — like know-your-customer — before processing orders.

TSMC could lose access to US tech

The Information said the investigation was still in its early stages, and that it was not yet clear how long it will take to reach a conclusion.

However, if TSMC is found to have violated export regulations, it could face fines or harsher penalties, like a temporary restriction on accessing US technology, it added.

Responding to the report, TSMC said it was a law abiding company, working in compliance with laws and regulations.

US President Joe Biden listens to TSMC chairman Mark Liu during a visit to TSMC AZ’s first Fab in Phoenix, Arizona. Photo: Reuters.

“If we have any reason to believe there are potential issues, we will take prompt action to ensure compliance, including conducting investigations and proactively communicating with relevant parties including customers and regulatory authorities as necessary,” TSMC said in a statement emailed to Reuters.

The probe comes at a crucial time for TSMC considering it is set to receive billions of dollars in subsidies from the Joe Biden government to build its third fab in Arizona state. The chipmaker has already invested $40 billion in the fabs that are scheduled to produce 2nm, 3nm and 4nm chips.

Even so, the firm’s shares remained unaffected by the report. TSMC’s Taiwan-listed stocks surged nearly 5% on Friday, following a breakneck rally in its US shares overnight.

What’s driving the US probe

The probe in TSMC’s potential links to Huawei comes at a time when the US is scrutinising chip supply chains to stop China from getting access to advanced chips and related technologies.

That effort is especially targeted towards Huawei, which the Washington blacklisted in 2019.

In 2020, Washington further tightened the noose around Huawei by requiring foreign manufacturers using US chipmaking equipment to get a license before being able to sell semiconductors to Huawei.

The rules decimated Huawei’s business, which went from being the second-largest smartphone maker in the world to nearly non-existent.

But that was until Huawei’s launch of a new smartphone series last year — powered by homegrown 7nm chip — which was seen across China as a ‘defeat’ of US sanctions.

The phone’s launch raised alarm bells in the US too, with lawmakers saying it signals that Huawei has found a way to circumvent sanctions. That concern has led the US to crack down on any Chinese chipmakers with links to Huawei. The probe into TSMC indicates, the US is now looking at chipmakers outside China too.

Huawei, meanwhile, has maintained that it developed the 7nm chip with Semiconductor Manufacturing International Corporation (SMIC) — China’s biggest chipmaker.

SMIC and Huawei are also reportedly working on developing 5nm chips, with billions of dollars in backing from Beijing. Huawei has also been manufacturing AI chips, and capturing market from Nvidia — which remains restricted from selling its most advanced chips in China.

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]

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