TSMC Under Investigation: The U.S. Government Is Examining Potential Secret Deals With Huawei

No one saw this coming. The Department of Commerce is investigating TSMC, the world’s largest integrated circuit manufacturer. According to The Information, officials suspect that the Taiwanese giant may have secretly reached agreements with Huawei to take over the manufacturing of its semiconductors for smartphones and artificial intelligence applications. This accusation is quite serious, given the current tensions between the U.S. and China.

However, the concerns seem to have some basis. In fact, TSMC recently issued a statement that doesn’t deny the allegations and emphasizes the company’s commitment to cooperation: “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 Is Too Important for the U.S. to Allow It to Operate Unchecked

In 2020, the U.S. government permanently blacklisted Huawei, which led TSMC to halt semiconductor manufacturing for the Chinese company. Two years later, in October 2022, the Biden administration decided to blacklist the entire Chinese semiconductor industry, which further narrowed TSMC’s customer base. Despite this, TSMC still has a robust roster of clients, including Apple, Nvidia, AMD, MediaTek, and Qualcomm, all of which depend on it for their advanced chip production.

In any case, it’s logical for Huawei to pursue having TSMC manufacture some of the integrated circuits it designs. The Chinese company is supported in this sector by SMIC, China’s leading semiconductor producer, but its advanced integration technologies fall short of TSMC’s state-of-the-art lithography. This lack of access to the most advanced lithography nodes hampers Huawei’s competitiveness.

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By contrast, it’s unclear whether it’s in TSMC’s interest to win back Huawei as a customer, especially given the potential repercussions with the U.S. government. TSMC’s customer base is currently strong, and its financial health is solid. Currently, there’s no concrete evidence that TSMC and Huawei have reached any agreement, apart from an unnamed source who provided information to The Information. In light of this, TSMC’s official statement is surprisingly vague.

The U.S. government is a key player in this situation, and it’s evident that the Department of Commerce won’t allow TSMC to manufacture leading-edge integrated circuits for Huawei. The Biden administration continues to argue that these chips could be utilized by the Chinese government to develop advanced weaponry and new artificial intelligence systems, which could pose a threat to U.S. security.

Moreover, most of the semiconductor manufacturing equipment used by TSMC originates from the U.S. or incorporates U.S. patents, such as machines made by ASML and Tokyo Electron. This situation allows the country to determine who can use this technology.

Image | 李 季霖

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