TSMC faces $1 billion fine for unintentionally supplying Huawei: A tech industry setback

TSMC, one of the biggest names in the global semiconductor industry, could be facing a hefty fine of $1 billion from US authorities. The sanction is related to the production of hardware that allegedly ended up being integrated into Huawei equipment, a Chinese company that is currently under heavy trade restrictions imposed by the US.

The Indirect Connection to Huawei via Sophgo

The chip in question was originally manufactured by TSMC for the Chinese company Sophgo. However, further investigations revealed that this component corresponded to the one used in Huawei’s artificial intelligence (AI) processor, the Ascend 910B.

Sources cited by Reuters indicate that TSMC may have violated US export control restrictions by supplying these chips to Sophgo, which later forwarded them to Huawei. It is this triangulation that serves as the basis for the potential hefty fine that the US intends to impose.

Violation of US Export Rules

Although TSMC is a Taiwan-based company, it is subject to US export controls because it uses US technology in its semiconductor manufacturing process. Consequently, the company is prohibited from directly supplying chips to Huawei, as well as certain types of advanced semiconductors to any Chinese entity, without obtaining a specific license from US authorities.

According to regulations, fines for violations can reach double the value of illicit transactions. The suggested $1 billion fine indicates that the original transaction between TSMC and Sophgo may have amounted to around $500 million. In comparison, TSMC’s revenues in 2024 approached $43 billion, according to Companies Market Cap data.

Ongoing Investigation and TSMC’s Position

The entity responsible for the investigation is the US Department of Commerce. TSMC, on the other hand, has reaffirmed its commitment to comply with all applicable laws and regulations, emphasizing that it has not directly supplied Huawei since September 2020. The Taiwanese manufacturer has also stated that it is actively cooperating with the Department of Commerce in the investigation, a stance that could potentially lead to a reduction in the final fine.

Consequences of the Discovery

The identification of TSMC’s hardware inside a Huawei product was made by the Canadian company TechInsights. This discovery has put TSMC under closer scrutiny by the US, which continues to try to prevent Huawei from accessing hardware manufactured with American technology.

Following this revelation, TSMC suspended shipments to Sophgo. Shortly thereafter, the US added Sophgo to its restricted entities list, also known as the “blacklist.” Additionally, the US Department of Commerce instructed TSMC to halt the supply of chips with a manufacturing process below 7 nanometers to China.

This incident highlights the complex web of regulations and restrictions that companies like TSMC must navigate in the global semiconductor industry. As tensions between the US and China persist, the consequences of violating export rules can have significant financial and reputational implications. It remains to be seen how this investigation will unfold and what impact it will have on TSMC and its future dealings with Huawei.

Background Information

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About TSMC:

TSMC, or Taiwan Semiconductor Manufacturing Company, is a semiconductor foundry based in Taiwan. Established in 1987, TSMC is a important player in the global semiconductor industry, specializing in the manufacturing of semiconductor wafers for a wide range of clients, including technology companies and chip designers. The company is known for its semiconductor fabrication processes and plays a critical role in advancing semiconductor technology worldwide.

  

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