The recent revelation that Taiwan Semiconductor Manufacturing Co. (TSMC) produced a 7-nanometer chip found in an artificial intelligence (AI) accelerator product by Huawei, a Chinese telecommunications company under strict U.S. sanctions, has sparked widespread controversy.
The situation has drawn the attention of U.S. lawmakers, highlighting vulnerabilities in current export controls and potentially complicating U.S.-China technological relations. As the world’s largest contract chip maker, TSMC’s involvement raises questions about the effectiveness of compliance mechanisms and the global ramifications of this incident.
John Moolenaar, chair of the House Committee on the Chinese Communist Party (CCP) in the United States, described TSMC’s role in Huawei’s product development as a “catastrophic failure of export control policy.” He is urging the U.S. Commerce Department’s Bureau of Industry and Security (BIS) to investigate the extent of TSMC’s involvement. This incident underscores the geopolitical tensions over technological superiority and the challenges associated with implementing strict export regulations.
On October 9, Canada-based semiconductor industry analyst TechInsights published a report titled “Huawei Ascend 910B AI Trainer – Die Analysis,” which outlined how a Huawei Atlas 300T A2 AI training card, reportedly containing the Ascend 910B processor, was built using TSMC’s 7-nanometer technology. This processor is a successor to Huawei’s original Ascend 910, which was designed in 2019. The analysis implies that TSMC’s chips had been used to create a critical AI accelerator for Huawei’s servers, a development that quickly attracted the attention of regulatory bodies and lawmakers worldwide.
In response to TechInsights’ analysis, TSMC announced that it had suspended chip shipments to an unidentified mainland client. Though TSMC did not disclose specifics, a Taiwanese trade official called the occurrence a “warning event.” Reports indicate that TSMC initiated an investigation after being notified of potential sanctions violations, subsequently informing both Taiwanese authorities and the U.S. Commerce Department about the incident.
The U.S. Commerce Department’s Bureau of Industry and Security (BIS) has opened an investigation to determine whether TSMC violated export rules by supplying Huawei with advanced AI chips. Moolenaar criticized the situation as a fundamental failure in the U.S. export control regime, warning that the incident could have significant consequences for national security. He emphasized the critical nature of AI accelerators, such as Huawei’s Atlas AI, in the technological competition with China.
Moolenaar’s demand for transparency from both TSMC and the BIS underscores the gravity of the situation. His concerns echo a broader anxiety within the U.S. government about the erosion of its technological advantage amid heightened tensions with China. Moolenaar also called for immediate steps to address vulnerabilities in current export controls, especially given the implications of U.S. technology potentially fueling sanctioned companies’ technological advancements.
Since the U.S. placed Huawei on its Entity List in 2019, prohibiting U.S. companies from doing business with it without specific licenses, Huawei has faced an uphill battle in securing high-end chips necessary for its smartphone and server businesses. Additionally, export restrictions on chip manufacturing equipment, including the Netherlands’ ban on ASML’s extreme ultraviolet (EUV) lithography machines, have further limited Huawei’s ability to produce advanced chips domestically.
Huawei attempted to develop the Ascend 910B chip in collaboration with the Semiconductor Manufacturing International Corp. (SMIC), a Shanghai-based firm. However, production hurdles, including insufficient chip-making machine parts and low production yields, reportedly hindered their progress. Although Huawei managed to produce chips domestically using SMIC’s N+2 process, the output remained limited and inconsistent. Despite these setbacks, Huawei managed to offer samples of its 910C chip to domestic server manufacturers, showing its determination to stay competitive with international semiconductor giants like Nvidia.
The timeline of the TSMC-Huawei incident offers insight into the convoluted nature of enforcing international sanctions and export controls. In early October, TechInsights revealed Huawei’s Atlas AI card analysis, suggesting that TSMC’s technology was present in the device. Following this revelation, on October 11, TSMC informed Taiwanese and U.S. authorities of a potential sanctions violation and promptly suspended shipments to the mainland client.
Shortly thereafter, The Information reported that the BIS had begun an official investigation into whether TSMC had indeed breached export regulations. The incident’s timing aligns with comments made by a Chinese technology columnist, who suggested that Huawei might need to pursue domestic production for its AI chips due to the fallout from its previous relationship with TSMC.
TSMC has publicly stated that it ceased its business relationship with Huawei in September 2020 in response to U.S. sanctions and has not produced chips for the company since then. Huawei has similarly denied receiving any TSMC chips since 2020, adding that its products are produced domestically. However, the discovery of a TSMC-manufactured chip in a Huawei product has led to widespread speculation about how these chips may have made their way into Huawei’s supply chain.
Industry insiders suggest that Huawei may have obtained these chips through indirect channels, as sanctioned entities can utilize complex networks of shell companies and minority-stake holdings to circumvent sanctions. This practice complicates regulatory oversight and makes it difficult for companies like TSMC to accurately track end-users of their products.
TSMC’s involvement in Huawei’s AI development could potentially alter the global semiconductor industry’s dynamics, particularly amid mounting trade restrictions. The semiconductor industry, which is vital to advancements in AI, 5G, and various emerging technologies, remains heavily reliant on complex and interdependent global supply chains. TSMC, as the world’s largest and most advanced contract chipmaker, sits at the center of this industry.
The ongoing investigation into TSMC’s potential sanctions breach may increase pressure on other companies to bolster their compliance measures. Firms will likely face additional scrutiny from U.S. regulators, particularly when producing chips for companies with connections to sensitive technologies or entities under sanction.
This incident exposes the limitations of current export controls in a rapidly globalizing industry and may prompt policymakers to reevaluate existing mechanisms. Experts argue that without stricter controls and better tracking systems, enforcement of technology trade restrictions will remain challenging. The complex nature of semiconductor production and the ability of sanctioned companies to use shell corporations further complicates regulatory oversight.
As the BIS investigation continues, policymakers are expected to review ways to close loopholes in the export control system. The incident may serve as a catalyst for the development of more stringent international cooperation mechanisms for tracking and controlling the flow of critical technologies.
