US order blocking TSMC’s AI chip shipments won’t hurt Apple

U.S. sanctions against Huawei has caused problems for TSMC over attempts by intermediaries to order certain AI-based chip designs on Huawei’s behalf. From Monday, TSMC is suspending shipments of the AI-focused chips to China, on the orders of the United States.

The Department of Commerce imposed export restrictions of select chip designs that were intended to be shipped to China, an unnamed source of Reuters claims. The shipment ban, which kicks in from Monday, affects certain types of chips made with 7-nanometer processes or advanced designs, intended for AI or graphics processing.

TSMC has already informed affected clients about the export change and the scheduling of its implementation.

The order is a natural progression of a probe by the Department of Commerce into TSMC’s inadvertent sanctions breach from October 18. The investigation looked into whether TSMC was willfully supplying Huawei with the chips and whether it knew that the intermediary was working on Huawei’s behalf.

While at the time it was not advised which company was working for Huawei, TSMC has been proactive in working with the Commerce Department. The chip maker warned that there was an attempt to violate sanctions via an intermediary, a technique the probe was examining.

Reuters added that the intermediary was Sophgo, a China-based chip designer. The chip matched one used in the Huawei AI processor.

“TSMC has had regular discussions with the government on export control issues and has made it clear that it will comply with domestic and international regulations,” said Taiwan’s economic ministry in a statement. TSMC similarly insists it was a “law-abiding company” that is “committed to complying with all applicable rules and regulations, including applicable export controls.”

The blocked shipments by the Department of Commerce certainly impacts TSMC’s sales with Huawei, but it could also cause other problems.

For a start, a blanket ban of supplying AI chips to other Chinese firms, or to chip designers who may supply other firms but could potentially do the same to Huawei, cuts sales and shipments for TSMC.

While TSMC is a highly in demand chip foundry, it still means an immediate drop in chip production, since the U.S. prevents it from fulfilling some of its orders.

Lower production means it has to shift around its production line to maximize the utility of its facilities. For its relatively new Arizona production plant, its relatively low amount of production could make it a viable facility to temporarily mothball.

While largely risking the Arizona investment temporarily, the order probably won’t do much to harm Apple’s supplies from the company.

Apple relies on assembly partners in China to produce its products, including the iPhone, and TSMC’s chips therefore need to be imported. As chips that have AI benefits in the form of the Neural Engine, this is the sort of chip that the Commerce Department is wary about handing over to Huawei.

However, with the exception of a small amount of A16 chips produced in the Arizona facility, the vast majority of its chips are made elsewhere, including in Taiwan.

While there is an intention for Apple chips to be made in the United States via TSMC’s Arizona facility, it may not necessarily get to produce cutting-edge chips.

Taiwan Minister of Economic Affairs J. W. Kuo said on Thursday that TSMC must keep producing chips using the latest production processes in its home country, reports Taipei Times. Specifically, the creation of chips using a 2-nanometer process.

“Since Taiwan has related regulations to protect its own technologies, TSMC cannot produce 2-nanometer chips overseas currently,” Kuo told the Economics Committee in Taipei. “Although TSMC plans to make 2-nanometer chips [abroad] in the future, its core technology will stay in Taiwan.”

Kuo’s comments were a response to claims TSMC may have to produce chips using advanced 2-nanometer processes ahead of schedule, following the election won by President-elect Donald Trump.

Currently, the A17 Pro and A18 chips are made on a 3-nanometer process. However, it is reckoned that the iPhone 18 Pro will have chips using a 2-nanometer process.

Under Taiwanese law, domestic chip manufacturers are allowed to produce chips elsewhere. The catch is that they must be at least one generation behind fabrication facilities operated in Taiwan.

TSMC currently plans to make 2-nanometer and more advanced chips at its Arizona facilities by 2030, according to the company’s roadmap.

The first fab is soon to ramp up 4-nanometer chip production next month. The second fab, which will go live in 2028, will work on 3-nanometer and 2-nanometer lines, and a third will deal with 2-nanometer and smaller technologies.

Unless Taiwan changes its laws, TSMC will have to create and use even more advanced manufacturing processes to allow 2-nanometer chip production to start in the United States.

For Apple, this means it cannot take advantage of TSMC’s newer chip processes for any chips made in the United States. Instead, it will have to rely on TSMC’s slightly older tech for US-based production, while maintaining existing out-of-US manufacturing for the fastest, newest chips.