US Revokes China Chip Equipment Waiver for TSMC, Potentially Disrupting Operations

Taiwan Semiconductor Manufacturing Co (TSMC) faces operational risk within months due to the US government's revocation of its authorization to freely ship essential equipment to its Nanjing facility in eastern Jiangsu province. The action, effective December 31, rescinds TSMC's fast-track export privilege known as Validated End User (VEU) status, requiring individual licenses for future shipments. Analysts expect the long-term impact to be limited, as the Nanjing facility accounts for only a small proportion of TSMC's total production capacity.

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has announced the revocation of Taiwan Semiconductor Manufacturing Co. (TSMC) “Validated End-User” (VEU) status for its Nanjing facility, effective December 31, 2025. This decision, which aligns with earlier measures impacting Samsung Electronics and SK hynix facilities in China, will require TSMC to obtain individual export licenses for future shipments of U.S.-origin semiconductor equipment to its Nanjing plant [1].

The VEU designation previously allowed TSMC streamlined access to certain U.S. technologies without case-by-case export licenses. The revocation will increase operational complexity for TSMC, as it will now need to navigate a more stringent regulatory environment for equipment sourcing. This decision is part of broader U.S. export controls aimed at limiting access to advanced semiconductor manufacturing capabilities in China [1].

Analysts predict that the immediate impact on TSMC’s operations may be significant. TSMC’s Nanjing facility, which began operations in 2018, initially deployed 16nm–12nm technology but has since expanded its 28nm and 22nm capacity to meet automotive and specialty demand. The facility accounts for about 3% of TSMC’s global capacity, which is a relatively small proportion of the company’s total production [1].

In response to the revocation, TSMC is actively evaluating the situation and communicating with U.S. authorities to ensure stable operations at its Nanjing plant. The company has emphasized its commitment to maintaining business continuity and serving customer needs without disruption [1].

The revocation places additional requirements on suppliers, such as Applied Materials, ASML, Tokyo Electron, and KLA, who will need U.S. approval to ship equipment, spare parts, and materials to the Nanjing facility. This development adds new layers of complexity to supply chain coordination in China [1].

Following the announcement, TSMC’s U.S.-listed American Depositary Receipts (ADRs) temporarily declined by 2.3% on Tuesday. This market reaction reflects investor concerns about the potential operational risks and the increased regulatory burden for TSMC [1].

In the near term, TSMC may redirect equipment orders originally designated for its facility in Kumamoto, Japan, to Nanjing, and stock up on spare parts ahead of the December 31 deadline, according to Phelix Lee, a senior equity analyst at Morningstar [2].

While the long-term impact on TSMC is expected to be limited, the immediate operational risk within the next few months is a significant concern. Taiwan’s Ministry of Economic Affairs has stated that the move would not undermine the competitiveness of Taiwan’s semiconductor industry as a whole, but the operational predictability at TSMC’s Nanjing site may be affected [1].

References:
[1] https://www.linkedin.com/pulse/tech-news-us-revokes-tsmc-nanjing-veu-status-smyg-limited-f2lmc
[2] https://www.scmp.com/tech/tech-war/article/3324551/tsmc-see-near-term-operational-risk-after-us-revokes-china-chip-equipment-waiver