At the urging of the USA TSMC suspends deliveries under 7nm to China

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Contract manufacturer TSMC has apparently suspended the delivery of semiconductor products manufactured in structure sizes under 7nm to Chinese customers. The reason for the decision is the revelation of the existence of advanced TSMC processes in AI accelerator chips used by Huawei, which are actually subject to export bans by the United States.

A few weeks ago, it became known that the chips used in the latest Huawei smartphone models for AI acceleration were apparently manufactured using modern process technologies by TSMC. TSMC itself had passed this information on to the US Department of Commerce. The reaction followed last Saturday: The USA has asked the contract manufacturer to stop supplying advanced chips to Chinese customers, which are often used in artificial intelligence applications.

As reported by the news agency Reuters, the US Department of Commerce referred in a letter to the foundry to the existing export restrictions for advanced chips with structure sizes of 7 nanometers or less, which are subject to an export ban on AI accelerators or GPUs by the United States if intended for a buyer from China. Huawei has been on a US Department of Commerce blacklist since 2019 and is one of the core companies headquartered in China that are subject to particularly stringent export restrictions by the United States.

The electronics trade medium Digitimes Asia now reports that TSMC has immediately complied with this request: Since Monday, November 11, 2024, the company has suspended all chip deliveries subject to these restrictions to Chinese customers.

The trade restriction, which particularly targets AI applications or dual-use scenarios—application fields whose chips could also be used for AI acceleration, such as GPUs and other parallel computing units for data centers—could impact TSMC's business activities in China, where the demand for powerful AI chips continues to rise. According to Digitimes, the world's leading contract manufacturer of modern semiconductor products has committed to complying with the regulations imposed by the United States, but has not yet publicly commented on the order.

Can Samsung and the local foundry SMIC meet the demand?

It is expected that Chinese companies will now try to switch to contract manufacturers like Samsung from South Korea or SMIC, the largest contract chip manufacturer based in China, for the relevant advanced technologies. In fact, Samsung Foundry recently faced difficulties with the utilization of its production lines due to the absence of large orders from China and announced extensive cost-saving measures in this area. However, it is anticipated that Samsung has received or may receive a similar letter from the US Department of Commerce. Since Samsung also operates fab facilities in the United States, it is expected that Samsung would also comply with the requests from Washington in such a case.

This leaves Chinese foundries like SMIC as the main option to compensate for the supply shortfall from TSMC. However, whether they can keep up in terms of capacity and technology to meet the growing demand is questionable. Although Xiaomi, a manufacturer of semiconductors for use in smartphones and electromobility, recently announced the successful tape-out of a chip in the 3nm manufacturing process from Chinese production, it is still unclear to what extent this could exclusively rely on technologies originating from China and whether the production capacities are sufficient for other applications.

Equally questionable are SMIC's capabilities to keep up with manufacturing technologies at structure sizes of 7nm or smaller. According to a Digitimes report, SMIC deliberately leaves unclear what their current advanced process platform is: SMIC no longer separately lists sub-7nm processes in its business reports. Moon-song Liang, co-CEO at SMIC and responsible for modern process technologies, has also not been available for information in this area for quite some time.

According to Digitimes, the latest devices on the global market that contained chips manufactured by SMIC using 7nm processes are the Huawei Mate 60 smartphones and the announced Huawei Mate 70. Both rely on Kirin processors from the Chinese provider HiSilicon. Market observers have noted that SMIC's EUV lithography limitations force reliance on complex multiple patterning processes, restricting their production. Meeting the demand for Kirin chips alone is said to already exceed SMIC's existing capacities. Therefore, the ability of the Chinese foundry to compensate for the shortfall in chips from TSMC's production lines is considered to be severely limited.

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