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US takes a close look at TSMC and Huawei
The US Commerce Department is looking into whether Taiwan Semiconductor Manufacturing Company, the world’s largest contract chipmaker, is — knowingly or unknowingly — producing computer chips for the Chinese technology giant Huawei.
TSMC is one of the most strategically important companies to the United States because of its overwhelming market share in the chip fabrication process. Chip designers such as NVIDIA, AMD, and Apple send their chips to be made at TSMC facilities. But it’s also located, as its name suggests, in Taiwan — and that makes its relationship with China, which doesn’t acknowledge Taiwan’s independence, geopolitically significant.
The US investigation, recently reported by The Information, is eyeing whether TSMC is manufacturing Huawei chips — either those used to power smartphones or AI applications. Under the Biden administration, the US has strengthened export controls, preventing US companies — or those reliant on US parts — from selling chips and semiconductor manufacturing equipment to Chinese companies. While Huawei has the most advanced AI chips in China, they lag significantly behind US chipmakers Nvidia, AMD, and Intel because they don’t have unfettered access to important middlemen like TSMC and the Dutch photolithography company ASML — that is, unless the US finds a major breach or loophole.
Commerce Secretary Gina Raimondo recently said she’s under “no illusion” that her department is completely sealing off China – so she knows that US-made chips and equipment are making their way to China through underground markets and intermediaries. The New York Times reported that hundreds of thousands of banned chips have been sold in the Shenzhen electronics markets alone.
Xiaomeng Lu, director of Eurasia Group’s geo-technology practice, said that the TSMC investigation appears to look at whether the company is following export control rules. “This question is slightly different than whether Huawei got restricted chips from TSMC through illegal channels,” she said. “If Huawei is doing that, which is a more geopolitically significant development than potential TSMC misconduct – and TSMC proves they are following all US rules and regulations, Huawei should be the one receiving severe penalties. And I am almost certain they will.”
A violation by TSMC would be legally risky – and a massive business mistake given the company’s closeness with the US and other Western nations it relies on. But the experts who spoke with GZERO are skeptical this is the case.
Hanna Dohmen, a research analyst at Georgetown University's Center for Security and Emerging Technology, said TSMC would be foolish to knowingly allow sales to Huawei — even through an intermediary.
“Given TSMC’s position in the US-China technology competition, it would be surprising if TSMC is knowingly providing its services and exporting TSMC-fabricated chips to Huawei or any third-party affiliates,” she said. “Such a brazen violation of US export controls would put it squarely at risk of significant legal, political, and reputational consequences.”
TSMC is also set to receive $6.6 billion from the US government, she notes, to build advanced fabrication facilities in Phoenix, Arizona. “For such a significant amount of taxpayer money, it will be important for TSMC to demonstrate that it is doing everything it can to comply with US regulations to avoid political and reputational fallout with policymakers on the Hill, the administration, and the public.”
The US has not yet alleged any wrongdoing and has merely opened an inquiry, and it could be months before the probe is completed.
If wrongdoing is proven, TSMC would be on the hook for major financial penalties, just as Seagate was last year when it was fined $300 million by the Commerce Department for illicit sales to Huawei. Such a revelation would also call into question the balance of power between the US and China, their race for AI, and Taiwan’s role in the middle.AMD has a fancy new chip to rival Nvidia
The US semiconductor designer AMD launched a new chip on Oct. 10. The Instinct MI325X is meant to compete with the upcoming Blackwell line of chips from market leader Nvidia.
Graphics processing chips from Nvidia, AMD, and Intel have been the lifeblood of the artificial intelligence boom, allowing the technology’s developers to train their powerful models and deploy them worldwide to users. Major tech companies have clamored to buy up valuable chips or pay to access large data centers full of them remotely through the cloud.
Lisa Su, CEO of AMD, claimed that the market for AI data centers will balloon by 60% a year and hit $500 billion by 2028. Still, investors weren’t convinced by what AMD showcased: The company’s stock fell 4% in trading Thursday, perhaps because AMD didn’t announce any big new deals with customers, though it bounced back 2% on Friday.
AMD’s new chips feature increased memory and a new architecture that the company promises will improve performance relative to prior models. Nvidia is expected to release its much-anticipated Blackwell chips by early next year, as the rivalry between the two most important AI chip designers in the world only gets hotter.
China wants its companies to ditch Nvidia
Nvidia’s highest-end chips are off-limits to Chinese companies due to strict export controls from the US. That hasn’t stopped developers from either buying lower-grade chips or finding the best chips in underground markets, but that may soon change.
Beijing has reportedly begun urging its private sector to use Huawei’s chips instead of Nvidia’s chips. China’s government hasn’t made an official announcement on the matter — at least not yet. Analysts expect that Huawei’s newest chip could perform better than the China-specific chip currently marketed by Nvidia. Huawei’s chips are nowhere near as advanced as chips from Nvidia or AMD, but they are more advanced than the ones Chinese companies can legally buy.
That all results in Huawei getting a boost in business from China’s domestic AI sector. If it can offer a decent chip for running and training AI models, and the government pressures companies to buy from them, it could be a boon for their pockets and help them develop better tech in the future.
How China smuggles sought-after chips
The US has placed strict limits on the sale of powerful chips to China. But in the underground electronics market in Shenzhen, the southeastern port city, vendors reportedly claim to be moving hundreds or even thousands of banned chips. These include Nvidia’s A100 and H100 series chips, their most advanced models.
One vendor said he arranged a $103 million shipment to a nearby warehouse. “The Shenzhen market cannot be restricted,” he told the Times. That these middlemen are getting their hands on powerful chips is a serious threat to US economic and national security priorities, as the Biden administration is dead set on limiting Chinese access to any technologies that can fuel the government’s AI ambitions. Commerce Secretary Gina Raimondo said recently that she’s under “no illusions” that her department is executing their goals perfectly and told the Times she’s limited by budget constraints.
A Chinese military with artificial intelligence at its fingertips is a nightmare scenario for the US, and while its export controls have limited what China can make, it might never be able to fully plug leaks in the mechanism.A chip bottleneck
Margrethe Vestager, the European Union’s competition chief, has warned of a “huge bottleneck” involving Nvidia. The US semiconductor company plays a pivotal role in designing chips necessary for training and running artificial intelligence models and applications — good for 80% of the market. In recent months, Nvidia has become a $3.1 trillion company — now the third-most-valuable firm in the world behind only Microsoft and Apple.
It’s too much of a good thing: NVIDIA’s chips are so in demand that it can’t make enough for AI firms looking to train bigger and better models. EU regulators are starting to wonder whether that bottleneck raises concerns over fair competitive markets.
In Singapore, Vestager told Bloomberg that the EU’s watchdogs are asking preliminary questions of Nvidia but haven’t made up their mind about any further regulatory steps. Vestager said a robust secondary market could relieve competitive concerns, implying that as long as Nvidia respects smaller firms it should stay in antitrust regulators’ good graces. Meanwhile, AMD and Intel are looking to close the gap with Nvidia, something that intense regulatory scrutiny on the market leader might aid.
The US-China chip stranglehold
The Biden administration has already imposed severe restrictions on semiconductor companies selling to China through export controls. But now it’s considering additional steps to maintain an edge over its rival in the East. The new measures would reportedly restrict China’s ability to access a specific chip architecture known as gate all around, or GAA. GAA is a powerful type of transistor that large chipmakers — including AMD, Intel, Nvidia, and Samsung — are planning to mass produce in the next year.
The US Commerce Department, which oversees export controls, hasn’t confirmed whether or when the rules will be finalized. But the administration has been dead set on limiting China’s access to chips they can use to train and run AI applications — an attitude that’ll only intensify as AI technology becomes more mature and more useful.
With a weak economy making retaliatory tariffs unlikely, Beijing is left with few responses other than subsidizing its domestic industry, which still lags behind the US.
Xi Jinping's solution to his "Taiwan problem"
"Xi has made it clear he plans to go solve the Taiwan problem while he's still in office." That's New York Times national security correspondent and New Cold Wars author David Sanger on why China's leader is setting his sights on the slender island off its eastern coast. Xi Jinping has made no secret of his belief that Taiwan belongs to China and that it is a national security imperative to bring it under Chinese sovereignty. But it's also an American national security imperative to prevent Xi from doing so, says Sanger. That's because the small island nation still manufactures the vast majority of the critical semiconductor microchips that power our modern world in both China and the United States.
"What Biden has done here in the semiconductor field of trying to choke the Chinese of the most advanced chips, but also the equipment to make those chips while trying to build up here, is the right step." At the same time, however, the Biden administration's push to manufacture more chips in the United States may also imperil the "silicon shield" that currently protects Taiwan from its Chinese neighbor. Nevertheless, Sanger argues that it's not just an industrial imperative for the United States to become self-sufficient in this area. It's a national defense imperative one as well."For our long-term security, it is much more important to build those [semiconductor factories] fabs than it is to build those aircraft carriers."
Catch GZERO World with Ian Bremmer every week on US public television (check local listings) and online.
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Samsung hands Biden another chip win
The Biden administration is busy courting global semiconductor manufacturers to build stateside, recently handing billions to Taiwan Semiconductor Manufacturing Company to expand its chip fabrication plant in Phoenix, Arizona.
On Monday, Commerce Secretary Gina Raimondo announced that the Biden administration is giving out another award as part of its CHIPS Act budget — this time to TSMC competitor Samsung, the South Korean electronics giant. Samsung will receive $6.4 billion to put toward its new manufacturing hub in Taylor, Texas, and expand its existing plant in Austin. In return, Samsung will pour $45 billion into its US projects and commit to producing cutting-edge two-nanometer chips.
Biden has made so-called silicon nationalism a tenet of his economic and national security-focused public policy, desperate to control the slow but crucial supply of chips used for everyday technologies as well as new artificial intelligence applications.