TSM under probe by US over potential dealings with China’s Huawei: report

The U.S. Commerce Department is probing if Taiwan Semiconductor (NYSE:TSM) has been making AI or smartphone chips for Chinese company Huawei Technologies, and violating U.S. export rules, The Information reported.

Huawei was once in competition with Apple (AAPL) and Samsung (OTCPK:SSNLF) to be the world’s biggest handset maker until U.S. restrictions, starting in 2019, began to curb its access to chip manufacturing tools needed to produce its most advanced models.

The U.S. banned the Chinese tech giant from buying chips made by using American parts, due to national security concerns. The restrictions also curbs Huawei from using U.S. technology to make its own chips without a greenlight from the Commerce Department.

In recent weeks, the U.S. department has contacted TSM to ask if it was involved in manufacturing either smartphone chips or AI chips for Huawei, the report added.

The department is also checking if Huawei bought chips from TSM indirectly using intermediary companies with a different name to place orders on its behalf, the report noted.

The government body is also evaluating whether TSM carried out the required know-your-customer due diligence while accepting orders, according to the report.

TSM noted it is committed to complying with all applicable rules and regulations, including applicable export controls. The Taiwan-based company added that it maintains an export system for monitoring and ensuring compliance, adding that it would take action to ensure compliance if there are potential issues, including conducting investigations and proactively communicating with relevant parties as required.

TSM — which produces chips for some of the world’s largest tech companies, including Apple, Nvidia and AMD — had previously signed a deal with the U.S. government to receive up to $6.6B in grants and as much as $5B in loans to boost domestic manufacturing of advanced semiconductors, under the U.S. CHIPS Act funding.

If the Commerce Department finds that TSM violated export rules in potential dealings with Huawei, it could impose a fine or more severe actions, such as temporarily halting the company’s access to U.S. tech. Last year, the department fined Seagate Technology $300M for selling hard disk drive technology to Huawei, the report noted.

The probe’s focus, partly, is also checking if TSM was involved in making AI chips designed by Huawei, the report added.

Huawei’s AI server chips have seen rising demand in China as an alternate to Nvidia-made chips, following export curbs by the U.S. on advanced chips by Nvidia and other American companies. In August, it was reported that Huawei was nearing to unveil a new chip to use for AI. Huawei had told potential clients that the new chip is comparable to Nvidia’s H100, which was unveiled last year and is not directly available in China.

The U.S. department is also investigating whether TSM made smartphone chips for Huawei’s phones. Prior to the U.S. ban, Huawei was a big customer of TSM, according to the report.

Last August, Huawei surprised many by quietly launching its new flagship smartphone, Mate 60 Pro. The chip inside the phone ignited concerns in the U.S. and raised questions about how it was possible, without the company being able to access critical technologies. In April, Huawei unveiled its Pura 70 series, which features the Kirin 9010 chip, a follow-up to the Kirin 9000s reportedly made by Semiconductor Manufacturing International (OTCQX:SIUIF) for the Mate 60 Pro.

Huawei and its chip making partner Semiconductor Manufacturing International, reportedly, have been struggling with the production of the chips used in Huawei’s next flagship phone Mate 70, due to the continuing impact of the U.S. ban.