TSMC will stop supplying 7nm and above chips to Chinese AI and graphics processing unit (GPU) customers starting November 11th. The move, taken under pressure from the US Commerce Department, could significantly impact China’s strategic position in the global technology race, forcing it to seek alternative sources of advanced chip supplies.
Image Source: TSMC
The notice was sent to all TSMC Chinese customers via official email. The decision follows repeated violations involving the transfer of such chips to Huawei through intermediaries, which has raised concerns among US regulators. Now, in order to avoid sanctions, TSMC is forced to reconsider cooperation with Chinese partners, sacrificing part of its market in order to maintain a strategic partnership with the United States.
The suspension of chip supplies may temporarily reduce TSMC’s business volumes in China. However, the company’s long-term strategy is aimed at strengthening its position in the US market, where it should receive a multi-billion dollar package of government support. According to Bloomberg and Reuters, TSMC will soon be able to receive $6.6 billion in subsidies and up to $5 billion in loans to build three factories in Arizona.
According to the Chinese media resource ijiwei, TSMC’s actions are due to the tightening of export controls introduced by the US Department of Commerce. Each chip must now undergo mandatory licensing by the Bureau of Industrial Security (BIS) and can only be shipped to China after receiving approval from BIS. This severely limits Chinese companies’ access to advanced process technologies at 7nm and below, jeopardizing their developments in AI, GPUs, and ADAS (Advanced Driver Assistance Systems) for autonomous driving. Without these chips, companies will be forced to spend more resources on designing and optimizing their solutions, which will increase their costs and delay the time to bring new products to market.
Without the opportunity to cooperate with TSMC, Chinese companies may turn to other suppliers, such as SMIC, which ranks third in the global semiconductor market. However, SMIC uses DUV lithography technology instead of the more advanced EUV, making its processes less efficient for mass production of 5nm chips. Moreover, according to the Financial Times, SMIC’s production costs are 40% to 50% higher, and its finished product yield rate is less than one-third that of TSMC. These restrictions, even despite its market share of 5.7% at the end of the second quarter of 2024, make SMIC less attractive to Chinese clients who require advanced solutions.
According to TrendForce estimates, at the end of the second quarter of 2024, TSMC occupied 62.3% of the global semiconductor market, firmly holding its position, while its closest competitor, Samsung, has a share of 11.5%, and SMIC remains in third place with 5.7%. These data highlight TSMC’s dominant position in the industry despite increasing geopolitical risks. The suspension of supplies to Chinese companies will strengthen TSMC’s position in the US market and will be an important signal of the possible disintegration of the global supply chain.