TSMC suspends production of advanced AI chips for China effective Monday

TSMC has announced suspension of production of its most advanced AI chips to China effective Monday, on geopolitical tensions between the West and the East.

The Taiwan Semiconductor Manufacturing Company (TSMC) notified its Chinese chip design companies of the suspension as the US continues to thwart China’s AI ambitions.

TSMC to implement tight controls

According to a Financial Times article, TSMC, which is the largest contract chipmaker globally alerted its Chinese market via email of the intention to halt production of the AI chips at advanced process nodes of 7 nanometers or smaller beginning this Monday, according to three people familiar with the matter.

The email stated that shipment of 7nm and below processes will be stopped beginning November 11.

According to wccftech, this supply affects only firms that leverage TSMC’s technology for AI, smartphones, and automobile chips.

Two of the three people revealed that any future supplies of such semiconductors by the chip-making giant to the Chinese markets would be subject to an approval process likely to involve Washington.

The decision comes as TSMC is rolling out a new policy after its systems, which were meant for another client, ended up in a Huawei device. Huawei is currently under multiple sanctions. The decision is also reportedly meant to help the firm improve its internal controls in the face of US the ongoing investigation and the next wave of US tightening of controls of chip exports to China.

The ban is also expected to stay in place until TSMC and the US Department of Commerce can negotiate and issue specific control details. The initiative comes as the US has imposed export bans on advanced AI systems in China.

US firms like Nvidia have been barred from exporting their cutting-edge processors to the Asian country. Additionally, the US has also made an export control system that stops any chipmaker worldwide that uses US technology from exporting advanced AI processors to China.

TSMC decision will affect Huawei and Alibaba among those to suffer

Being cut off from TSMC products could hurt Chinese tech firms like Alibaba, Baidu, and Huawei. Baidu for instance aims to build a stack of software and hardware to support its AI businesses. As if that is not enough, Baidu’s Kunlun II processor is made by TSMC on its 7nm miniaturization.

The companies that do not fall under the affected categories can still have the AI chips produced for them but will require a license.

This decision, the wccftech report says will also have an adverse impact on the firm’s revenues although chances are high that US companies will pick after the Chinese firms immediately. This will enable the chipmaking firm to offset the losses.

According to wccftech, the overseas companies were believed to be proxies for Huawei, to allow the latter to access technology for various applications.

While there is no evidence yet that connects Huawei with unacceptable activities, the Chinese firm has been reported to be approaching TSMC engineers via recruitment agencies to lure them with a handsome package, offering to triple their current salaries.

These engineers are said to possess skills and years of experience, which have been instrumental in TSMC’s success. Additionally, these engineers are also said to have technological trade secrets that could work in Huawei’s favor if they chose to work for the Chinese firm.