Introduction:
In a rapidly evolving semiconductor landscape, Taiwan Semiconductor Manufacturing Company (TSMC) has found itself at the center of an intense geopolitical battle between the United States and China. TSMC, the world’s leading contract chip manufacturer, is adjusting its IC packaging process. The move aligns with U.S. chip manufacturing restrictions.
TSMC aims to keep its 16/14nm advanced chip foundry business in China. It seeks to comply with regulations without fully exiting the market.
Additionally, its strategic arrangement for Apple’s upcoming M5 chips aims to minimize potential tariff costs, demonstrating its adaptability in navigating complex global trade challenges.
TSMC Compliance with US Chip Manufacturing Restrictions
To ensure compliance, TSMC told its fabless customers, especially from mainland China, that it will stop shipping 16/14nm and more advanced chips if the final OSAT provider is not on the US Commerce Department’s Whitelist.
According to ICSmart, this measure particularly impacts IC designers who have not yet secured a place on the US design Whitelist.
TSMC’s move comes amid growing US government scrutiny, especially after TechInsights discovered its chips in a Huawei processor.
The discovery has increased pressure on TSMC, given allegations that Chinese companies, including Sophgo and PowerAIR, engaged in a “white glove” operation to procure TSMC chips and transfer them to Huawei.
As TSMC finds itself caught in the crosshairs of US-China tensions, the company must tread carefully to comply with US regulations while safeguarding its business relationships with legitimate Chinese customers.
Strategic Adjustments to Mitigate Risks
To navigate these geopolitical complexities, TSMC has crafted a strategy aimed at mitigating risks while continuing to serve unaffected Chinese clients.
One of the most critical aspects of this strategy involves diversifying its packaging partners to ensure compliance with US regulations and reduce potential tariff implications.
Korean media outlet ETnews recently reported that Apple’s M5 chips, manufactured by TSMC, will be packaged by three companies: Taiwan’s ASE, Amkor in the US, and JCET in China.
This diversified approach aligns with Apple’s broader supply chain strategy, which seeks to distribute packaging across multiple regions to minimize exposure to tariffs imposed by the US or potential retaliatory measures from China.
With former US President Donald Trump announcing a 10% tariff on imports from China and threatening additional tariffs on chips from Taiwan, multinational corporations are actively formulating contingency plans to mitigate geopolitical risks. TSMC’s strategic recalibration highlights its foresight in navigating the complexities of international trade policies.
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Preventing AI Chip Evasion Tactics
The US government’s chip manufacturing restrictions primarily target China’s artificial intelligence (AI) chip development, aiming to prevent Chinese companies from circumventing these regulations through intermediaries, also known as “white glove” services.
These tactics involve transferring advanced chips to third-party packaging and testing vendors that are not on the US Whitelist to produce high-performance computing (HPC) and AI chips.
To counteract these evasion tactics, the US Department of Commerce has established a stringent Whitelist for OSAT providers.
Currently, approved OSATs include industry leaders such as Amkor Technology, ASE Technology Holding, and Doosan Tesna.
These companies are required to verify the chips designed by non-whitelisted firms before exporting them to China.
The regulations further stipulate specific conditions for export, re-export, or transfer based on transistor counts and the inclusion of high-bandwidth memory (HBM).
For example, packaged ICs containing fewer than 30 billion transistors or those that do not include HBM can be exported without restriction.
TSMC’s CEO Addresses Industry Concerns
During TSMC’s Q4 2024 earnings conference in January, CEO C.C. Wei addressed concerns regarding the impact of US restrictions on Chinese customers.
Wei reassured analysts that TSMC is actively applying for special permits on behalf of its affected Chinese clients.
He expressed confidence that these customers would receive approval, particularly those in industries outside of AI, such as automotive manufacturing and crypto mining.
Wei’s statements suggest that while TSMC is adhering to US regulations, it remains committed to serving its diverse client base, balancing compliance with business continuity.
Conclusion: TSMC’s Strategic Balancing Act
As TSMC continues to navigate the turbulent waters of global trade restrictions, its proactive approach in diversifying packaging providers and complying with US regulations underscores its efforts to strike a delicate balance between regulatory pressures and customer needs.
Whether these strategies will successfully mitigate the risks posed by the shifting geopolitical landscape remains to be seen.
However, TSMC’s agility and strategic foresight will be critical in maintaining its leadership position in the semiconductor industry.
With the semiconductor sector playing a crucial role in the global economy, TSMC’s ability to adapt to regulatory changes and geopolitical uncertainties will undoubtedly shape the future of chip manufacturing.
As trade tensions continue to evolve, industry stakeholders will be closely watching TSMC’s next moves to gauge the broader implications for the semiconductor supply chain.
