The largest manufacturer of AI chips told its Chinese customers it would stop fabricating their most advanced designs, further limiting China’s access to AI hardware.
What’s new: Taiwan Semiconductor Manufacturing Corp. (TSMC) notified Alibaba, Baidu, and others it would halt production of their most advanced chips starting November 13, according to multiple reports. The restriction affects chip designs that are based on manufacturing processes at scales of 7 nanometers and below. TSMC must receive explicit permission from the U.S. government to manufacture advanced chips for a given customer, which likely would require that the government assess each chip to prevent potential military applications.
How it works: The United States Department of Commerce ordered TSMC to halt shipments of advanced AI chips to China after a chip fabricated by TSMC was discovered in an AI system sold by the Chinese telecoms giant Huawei, apparently in violation of earlier U.S. controls, Reuters reported. Taiwan’s economic ministry said it would follow all domestic and international regulations.
- TSMC’s manufacturing processes etch transistors into silicon at minuscule sizes to fabricate hardware like the Nvidia A100 GPU (which uses the 7 nanometer process), Nvidia H100 GPU (5 nanometer process), and Apple A18 CPU (3 nanometer process). Smaller transistors make it possible to fit more transistors per area of silicon, leading to faster processing — an important capability for training large neural networks and providing them to large numbers of users.
- Although TSMC is headquartered in Taiwan, it uses chip-manufacturing equipment made by U.S. companies such as Applied Materials and Lam Research. TSMC’s use of U.S. equipment obligates the company to comply with U.S. export control policies.
- The policy could force several Chinese companies to either downgrade their chip designs or seek alternative suppliers. For example, Alibaba, Baidu, Huawei and Tencent have depended on TSMC to manufacture their chip designs. ByteDance partnered with TSMC to develop AI chips to rival Nvidia’s.
- Samsung and Intel are capable of fabricating advanced chips, but they, too, are subject to U.S. restrictions on sales of advanced chips to China. U.S. officials have expressed skepticism that China’s own Semiconductor Manufacturing International Corporation can supply in large volumes chips manufactured using processes of 7 nanometers or smaller.
Behind the news: The U.S.-China chip standoff began in 2020 and has escalated since. Initial restrictions barred U.S.-based companies like AMD, Intel, and Nvidia from selling advanced chips to Huawei and affiliated Chinese firms. China responded by promoting domestic chip fabrication. In 2022, the U.S. passed the CHIPS and Science Act to boost its own chip industry, seeking to counter China and decrease U.S. reliance on Taiwan.
Why it matters: TSMC finds itself in the middle of an AI arms race in which cutting-edge chips could tip the balance. The company itself, which has been operating at full capacity, is unlikely to suffer business losses.
We’re thinking: AI developers in China have been resourceful in navigating previous restrictions. Chip manufacturing is extraordinarily difficult to master, but China has made strides in this direction. A proliferation of factories that can fabricate advanced chips would reshape AI research and business worldwide.