TSMC Faces Crosshairs Over Export Controls Amid Huawei AI Chip Controversy
36min read The semiconductor giant Taiwan Semiconductor Manufacturing Company (TSMC) has found itself at the center of a high-stakes geopolitical and legal battle, as U.S. authorities scrutinize its role in supplying chips that allegedly ended up in Huawei’s banned AI systems. While TSMC maintains strict compliance with U.S. sanctions—halting direct shipments to Huawei since September 2020—the company faces mounting scrutiny over its inability to control third-party diversions of its chips.
Ask Aime: "Is TSMC's chip supply to Huawei threatening U.S. sanctions?"
The Limits of Compliance
TSMC’s 2024 annual report underscores a systemic challenge: its role as a foundry inherently limits visibility into how its chips are ultimately used. The company admitted it cannot guarantee that its semiconductors won’t be diverted to restricted entities like Huawei, despite due diligence measures such as reviewing suspicious orders and alerting regulators. This vulnerability has now materialized in a potential $1+ billion fine from the U.S. Commerce Department, tied to nearly 3 million chips manufactured for Sophgo Technologies—a U.S.-sanctioned firm accused of funneling TSMC chips to Huawei’s AI processors.
The Huawei-Sophgo Connection
In 2024, Canadian firm TechInsights discovered TSMC-manufactured chips in Huawei’s Ascend 910B AI chip, which was designed by Sophgo. While TSMC halted shipments to Sophgo after detecting the diversion, U.S. authorities later blacklisted both Sophgo and Singapore-based PowerAir Pte for alleged involvement in the scheme. TSMC insists it “did not supply Huawei directly post-2020” but acknowledges the complexity of policing a global supply chain.
Ask Aime: Could TSMC's chip supply impact Huawei's AI plans?
Geopolitical Risks Escalate
The dispute has reignited concerns over U.S.-China trade tensions. TSMC warns that escalating tariffs and export controls could disrupt its business, with its annual report noting: “Tariffs on semiconductors may reduce demand and hinder growth.” U.S. proposals to ban sales of advanced chips to China further threaten TSMC’s market access. Meanwhile, congressional criticism has intensified, with lawmakers like John Moolenaar labeling the incident a “catastrophic failure” of U.S. export policy.
Legal and Financial Fallout
The $1+ billion fine proposed by the U.S. Commerce Department would mark one of the largest penalties in TSMC’s history. While the company has cooperated with investigations and maintains its compliance stance, the incident underscores risks tied to its reliance on U.S. technology and licensing. TSMC’s gross margin—currently around 55%—could face pressure if penalties materialize or trade tensions force operational changes.
Investment Implications
Investors must weigh TSMC’s industry dominance against these emerging risks. The company’s 3-nanometer technology and U.S. factory investments ($12 billion in Arizona) are strategic advantages, but its stock—down 12% year-to-date—reflects growing uncertainty. Key metrics to watch:
- Valuation: TSMC’s P/E ratio of 18x is below its 5-year average of 22x, suggesting some pessimism.
- Geopolitical Catalysts: U.S.-China trade negotiations and export control updates.
- Compliance Outcomes: Final rulings on the Sophgo case and any new sanctions.
Conclusion
TSMC’s position as the world’s premier chipmaker is under pressure from both legal and geopolitical headwinds. While its $1 billion fine remains unresolved, the broader threat of supply chain fragmentation and escalating tariffs could dent growth prospects. Investors should monitor regulatory developments closely: if penalties are minimized and trade tensions ease, TSMC’s stock—currently trading at $65 (down from $90 in 2021)—could rebound. However, persistent conflicts or new sanctions could push valuations lower. The semiconductor giant’s fate now hinges on navigating a minefield of global politics and legal compliance—a balancing act with billions at stake.
