Potential Billion-Dollar Fine for TSMC Over Alleged Chip Sales to Huawei

The world's largest semiconductor foundry, TSMC, faces the possibility of a historic billion-dollar fine from the United States due to alleged violations of semiconductor export bans. Reports indicate that the U.S. Department of Commerce is investigating the potential production of chiplets by the Taiwanese manufacturer that may have been supplied to Huawei, in breach of trade restrictions that have been in place since September 2020.

Last autumn, TSMC technology was unexpectedly discovered in Huawei's artificial intelligence (AI) accelerators. A thorough examination of the processor found in Huawei's Atlas 300T A2 AI accelerator revealed that the Ascend 910B chip, produced by Huawei's subsidiary Hisilicon, contained components made in Taiwan. TSMC has been explicitly prohibited from cooperating with Huawei and other Chinese firms. Despite Huawei's claim that it has never released the Ascend 910B to the market, TSMC has firmly denied any shipments to Huawei post-September 2020.

However, speculation surrounding the presence of TSMC chips in Huawei accelerators has persisted, with reports suggesting that Sophgo, a Chinese company specializing in AI chips for specific applications, acted as an intermediary to facilitate the transfer of TSMC chips to Huawei. Sophgo allegedly ordered the chips from TSMC and subsequently passed them on to Huawei. TSMC has since ceased all deliveries to Sophgo, which has publicly denied any involvement in the investigation concerning Huawei, claiming to have provided evidence to TSMC demonstrating its lack of connection to the case.

In October, TSMC stated that it was in communication with the U.S. Department of Commerce regarding the matter and indicated that there were no signs of being under investigation. However, recent reports from Reuters contradict this statement, revealing that the Department of Commerce is indeed scrutinizing the collaboration between TSMC and Sophgo, particularly after a semiconductor manufactured by TSMC was found in Huawei's Ascend 910B processor.

According to Lennart Heim, a researcher at the RAND Corporation, TSMC has manufactured nearly three million chips in recent years that align with designs commissioned by Sophgo, which ultimately appear to have been delivered to Huawei. RAND is a prominent think tank that closely monitors advancements in artificial intelligence in China.

A potential fine in the billions would set a new precedent, as such penalties for export violations are generally uncommon and calculated based on the value of the involved products. In 2023, Seagate incurred a record fine of $300 million for supplying hard drives to Huawei, based on a settlement with the U.S. Department of Commerce. The value of the prohibited hard drives was estimated at over $1.1 billion.

When approached for comment, the Department of Commerce declined to provide details regarding the investigation into TSMC. A spokesperson for TSMC reiterated that the company has not supplied Huawei since September 2020 and is cooperating with the Department of Commerce. As of now, the Department has not initiated any actions against TSMC. Typically, companies accused of export violations are informed of investigations and potential penalties beforehand, allowing them to respond accordingly.