TSMC will halt shipments of cutting-edge AI chips to China starting Monday

According to a report in The Financial Times, the world’s leading foundry, TSMC, will suspend the production of advanced AI chips for clients in China starting on Monday. The Financial Times cited three sources familiar with the matter. More precisely, the report says that TSMC has told companies that design chips that it will suspend production of cutting-edge AI chips produced using a process node of 7nm or smaller. This dovetails with U.S. sanctions banning the shipments of advanced GPU chips to China. These chips help enable AI.

The U.S. is concerned that if China is able to obtain AI chips, they could be used to improve the country’s military capabilities. Earlier this month the U.S. fined GlobalFoundries $500,000 for shipping chips without authority to China’s largest foundry (and the third largest in the world after TSMC and Samsung Foundry) SMIC.

Last month TSMC halted shipments of chips to a client after some of the chips produced for the client ended up in a Huawei AI device. The U.S. Commerce Department is reportedly taking a long, deep look at this. Future shipments of AI chips from TSMC to China would probably require approval from the Commerce Department and perhaps even the White House. Since 2020, Huawei has been banned from receiving cutting-edge chips from foundries that use American technology.

“TSMC does not comment on market rumour. TSMC is a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls.”-TSMC spokesman

Today’s report says that TSMC’s decision to suspend the AI chip shipments to China will have a negative impact on Chinese tech firms including Alibaba and Baidu. Those two firms have spent plenty of cash designing chips for their AI clouds and were hoping to have them manufactured by TSMC. There has been speculation from securities firm Jefferies that the Commerce Department will soon announce a new export rule that will ban foundries from building advanced AI chips designed by Chinese firms.

TSMC will halt shipments of cutting-edge AI chips to China starting Monday

The U.S. fined GlobalFoundries $500K earlier this month for shipping chips to Chinese foundry SMIC. | Image credit-SMIC

As for TSMC, the decision to suspend the production of advanced AI chips for Chinese clients is a sign that the foundry knows it is on the hot seat and needs to improve its internal controls. The next batch of U.S. export controls on chips to China could be announced by the U.S. before President Joe Biden leaves the White House in January.

Some are suggesting that TSMC is making this move as a way to show President-Elect Donald Trump that it can follow U.S. policies. Earlier this year, Trump accused TSMC of stealing the U.S. chip industry and added that the company could send billions of dollars back to Taiwan that it received in subsidies from the U.S. for building three fabs in Arizona. Taiwan’s economic minister denied that Trump’s claim was true.

“Taiwan took our chip business from us. I mean, how stupid are we? They took all of our chip business. They’re immensely wealthy.”-President-Elect Donald Trump

TSMC says that the suspension of Chinese AI-chip production is “not a show for Trump but definitely designed to underscore that we are the good guys and not acting against US interests.”

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