Last week was a big one for the semiconductor industry. The United States government announced new export controls that seek to decrease reliance on international companies for chips and cutting-edge technology. Another effect of the new regulations is to make it more difficult for the Chinese tech firm Huawei to acquire chips made using U.S. technology.
In response, the world’s largest contract semiconductor manufacturer, Taiwanese Semiconductor Manufacturing Co. (TSMC), has reportedly stopped taking orders from Huawei. That is a major development with far-reaching implications not only for Huawei but for the global chip industry.
Turning off the Tap
Reports of TSMC’s decision were first noted by the Nikkei Asian Review. A source familiar with the situation said, “TSMC has stopped taking new orders from Huawei after the new rule change was announced to fully comply with the latest export control regulation.”
Notably, Huawei is TSMC’s second-largest customer. It lags only behind Apple in terms of contract chip purchases. As such, cutting off orders from Huawei is undoubtedly a difficult decision. It appears that TSMC is making a choice early on to put itself in the good graces of the greater international chip sector and the newly accelerating U.S. market.
Indeed, last week it announced that it will build an advanced chip foundry for the 5nm process in Arizona. That project will have backing from both the state and U.S. federal government. It will eventually allow TSMC to fulfill orders closer to home for its domestic clients and help decrease reliance on Asian semiconductor manufacturers.
As for cutting off supply to Huawei, the change won’t happen immediately. Orders placed prior to the new U.S. export regulations and those which are already in production won’t be affected—so long as they are shipped prior to September 14.
The U.S. government has been ramping up its stance against Huawei in recent years. It has repeatedly claimed that the Chinese tech company is a threat to national security and disapproves of using its technology for American networks and digital infrastructure.
The latest export regulations require all non-U.S. chip manufacturers who use American chipmaking equipment, intellectual property, or design software to apply for a license before shipping chips to Huawei. Obviously, those specifications cover a large portion of the semiconductor industry.
As for Huawei’s side of the story, things are looking grim. Although the tech company has weathered a storm of regulations so far, this is perhaps the most drastic measure yet. If other suppliers follow TSMC’s lead, Huawei will be at a huge disadvantage. It currently uses equipment from TSMC to manufacture everything from its flagship smartphones to its networking gear and artificial intelligence processors.
To stay afloat, it appears that Huawei may shift some of its chip supply to Samsung. The company has been exploring this option in the past so the move could happen quickly.
Meanwhile, it is also working to facilitate domestic production through China’s Semiconductor Manufacturing International Corporation (SMIC). While the company just got a $2.2 billion investment from the Chinese government, it lags behind TSMC in terms of advanced chipmaking.
Moving forward, it will be interesting to see how both Huawei and the wider semiconductor industry react to the latest U.S. regulations.