TSMC chips reportedly ended up at Huawei. It raises concerns about ‘shadow networks’ circumventing US sanctions.

• According to reports, TSMC has halted shipments to a customer after chips were found in Huawei products.

• TSMC and other chipmakers are not allowed to do business with Huawei without U.S. government approval.

• Min-yen Chiang, a researcher, told BI that it raises questions about a “shadow network” of the chip supply.

Taiwan Semiconductor Manufacturing Company has halted shipments to a customer after the shipped chips were found in products produced by Huawei Technologies – which is under US export controls – an unnamed Taipei government official told AFP.

TSMC has notified the US and Taiwanese governments over its possible violations of US sanctions restricting technology transfers to the Chinese company, according to Bloomberg. TSMC is Taiwan’s largest company and the world’s largest dedicated independent semiconductor foundry.

TSMC and other chipmakers are not allowed to do business with Huawei without U.S. government approval. The sanctions are part of efforts to limit Huawei’s technological capabilities, especially in areas such as 5G and AI.

The reports raise questions about supply chain transparency and could lead to increased export controls, according to researchers and analysts who spoke to BI.

On Wednesday, John Moolenaar, the chairman of the Select Committee on the Chinese Communist Party, denounced the development in a statement.

“Reports that advanced TSMC-manufactured chips contributed to Huawei’s AI development represent a catastrophic failure of U.S. export control policy,” he said.

“AI accelerators, like the ones powered by these chips, are at the forefront of our technology race with the CCP, and I fear the damage done here will have significant implications for our national security,” Moolenaar added. “Congress needs immediate answers from both BIS and TSMC on the scale and scope of this disaster. The U.S. government must take immediate steps to ensure this doesn’t happen again.”

TSMC, Huawei and the Commerce Department did not immediately respond to Business Insider’s requests for comment.

TSMC told Bloomberg that it has stopped all shipments to Huawei after September 15, 2020. It declined to comment on reports that its chips had ended up in Huawei products.

“TSMC is a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls,” TSMC said in its emailed statement to Bloomberg. “We have proactively communicated with the U.S. Department of Commerce regarding the matter in the report. We are not aware of TSMC being the subject of any investigation at this time.”

A ‘shadow network’ of chips

The report adds to US concerns that Huawei may be acquiring advanced chips despite being blacklisted since 2020. A US semiconductor association warned last year that Huawei was building a shadow production network.

Min-yen Chiang, a researcher who focuses on the political economy of semiconductors, told Business Insider that the development raises questions about the opacity surrounding Huawei’s “shadow network” of chips, including how big the web is and the nature of the network .

He said public information shows that TSMC is closely monitoring export controls, but Huawei’s network needs to be better understood to improve due diligence.

“If it remains unclear, what happened to TSMC could also happen to other chip makers because they don’t know if the chips they sell to Huawei would be resold,” Chiang said.

Supply chain issues

The situation could also have other implications, including distrust over TSMC’s supply chain and increased scrutiny from regulators, analysts said.

Kate Leaman, chief market analyst at AvaTrade, said the broader concern is how Huawei obtained the advanced chips.

“This raises suspicions about possible loopholes or third-party intermediaries acting on their behalf,” she said.

“If TSMC is found to have violated export controls, it could face fines that could limit access to U.S. technology,” she continued, adding that this would not only harm TSMC’s business but also have broader consequences for technology giants such as Apple and Nvidia. which are heavily dependent on TSMC for chip production.

Leaman said the issue could also lead to increasingly strict export controls and increased supply chain scrutiny for companies involved in sensitive technology.

Export controls

On Wednesday, Taiwan’s Economic Minister JW Kuo told reporters in Taipei that the island respects US export control measures and will strongly communicate this position to the industry.

A spokesperson for the U.S. Department of Commerce told Bloomberg that the agency’s Bureau of Industry and Security “is aware of reports of alleged violations of U.S. export controls.”

Xiaomeng Lu, director of geotechnology at consultancy Eurasia Group, said the US investigation into TSMC, as reported by The Information on October 17, appears to be examining whether the company is following export control rules.

“This question is different from the question of whether Huawei obtained restricted chips from TSMC through illegal channels,” she told GZERO Media, a subsidiary of the Eurasia Group.

“If Huawei does that, which is a more important development geopolitically than potential TSMC misconduct – and TSMC proves that they are following all US rules and regulations, Huawei should be the one to face severe penalties. And I’m pretty sure that they will,” Lu said. added.

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