TSMC has frozen chip supplies to China due to suspicions of cooperation with Huawei. Why?

Due to suspicions that the Chinese company Huawei could use Taiwanese chips in circumvention of international sanctions, semiconductor manufacturer TSMC temporarily suspended the supply of chips to China – including to a large company from China, Sophgo, which is considered a proxy of Huawei. The latter is subject to the most powerful US trade sanctions among most electronics manufacturers in China.

The situation escalated in October 2024 when information has appeared about the possible participation of TSMC in the development of the Huawei Ascend 910B AI accelerator. This is a flagrant violation of US sanctions restrictions, because the United States prohibits the supply of modern American technologies to China. The story is confusing, and the details are under the cut.

What kind of suspicions are there?

By Reuters informationTSMC has decided to suspend supplies to a number of Chinese companies. The move was prompted by suspicions that one of its customers, Huawei, is using manufactured chips in its latest AI accelerator, the Ascend 910B, which could be based on cutting-edge designs from TSMC. Although there is no direct evidence of violations yet, TSMC has decided to suspend deliveries while the investigations are ongoing.

American authorities have been restricting Huawei's work for several years now, imposing various sanctions, including a ban on the production of chips using modern technological processes through TSMC since May 2020. But it is possible to use outdated technologies. We've already written about how sanctions don't work well, and now there seems to be further evidence of this, as the unexpected discovery of the latest TSMC chips in Huawei products has cast doubt on whether the ban will be enforced.

Ascend 910B: Chinese AI accelerator in the face of sanctions and resource shortages

Huawei Ascend 910B is a powerful AI accelerator, Chinese alternative high-performance Nvidia and AMD chips. The Chinese began work on Ascend 910B as response to US sanctionswhich limited Huawei's access to advanced AI technologies. The accelerator was released back in 2022, and since then Huawei has been successfully selling it on the Chinese market and also using it in its own projects.

The Ascend 910B is built on a 7nm process architecture from SMIC, a Chinese contract chip manufacturer that operates in the Chinese domestic market with limited access to advanced technologies. Due to these limits, Huawei had to adapt the chip design, reducing the number of active AI cores while increasing the amount of accumulated memory. It is used to store data arrays necessary for calculations, which allows for faster processing and ensures stable operation of the accelerator under high load conditions.

Adapting the chip makes it possible to increase power, but at the same time it limits Huawei's potential. Especially compared to competitors who have access to the latest technology and manufacturing capabilities, such as TSMC​.

Ascend 910B Features:

• Performance: Up to 340 teraflops for INT8, making it comparable to the Nvidia A100, although its power is lower than Nvidia's H100.

• Architecture: Based on SMIC's 7nm process, a Chinese manufacturer, as access to TSMC is limited. The 910B has 25 active cores out of a possible 32 (we'll explain below why there are so few of them).

• Data Types: Supports FP16 and INT8, making it effective for machine learning tasks and basic AI applications.

• Intended use: Designed as an accelerator for local AI systems, used in projects by ByteDance, Baidu and other Chinese companies to create powerful language models.

Logistics problems and low product yield rates yield rate) SMIC is still limiting the production volume of Ascend 910B chips and the ability to add the maximum number of cores to the accelerator. The low yield rate, in turn, is explained by technological difficulties, shortcomings in production lines, and so on. In the context of Huawei and Chinese manufacturers such as SMIC, the low yield ratio is due to restrictions on access to modern equipment and technology due to sanctions, which makes it difficult to achieve consistent quality at the level of Nvidia and AMD. SMIC only has about 20% of the chips produced originally meet the standards.

How the secret became clear

Huawei Ascend 910B was developed as an alternative to American AI accelerators Nvidia and AMD, which are also subject to US sanctions. One of the device samples fell into the hands of the Canadian analytical company TechInsights, whose specialists revealed that some components of the Ascend 910B chip were manufactured by TSMC. TechInsights submitted its findings to the relevant authorities in the US and Taiwan, which became the starting point for the investigation.

After the information was released, TSMC officially notified The US Department of Commerce on possible attempts by Huawei to circumvent sanctions through intermediaries. The Taiwanese company explained that Huawei tried to place an order for the production of the graphics processor for the Ascend 910B, using the services of an intermediary. At the time of publication of the news, TSMC and Huawei denied any evidence of a business relationship between them.

The scandal also affected other companies. The same Sophgo, which produces AI chips and has been promoting its products on the Russian market since the beginning of 2024, found itself at risk. To her TSMC has stopped shipping chips for nowas discussed above.

What's next?

Sophgo emphasized that it has always complied with the law and does not cooperate with Huawei, providing TSMC with documents confirming the absence of business ties with the Chinese technology giant. But the restrictions still remain in force, and the issue of supplying chips to Sophgo has not yet been resolved.

The development of the situation largely depends on the progress of the investigation and the actions of both TSMC and US regulators. Here are some possible directions:

1. Increased sanctions and restrictions: If the investigation confirms that Huawei circumvented sanctions by using TSMC chips, even stricter measures will likely follow. The US Department of Commerce may tighten restrictions on technology exports to China, and this will affect the entire semiconductor market.

2. Search for alternative development paths: For Huawei and other Chinese technology giants, such restrictions could become an incentive to accelerate the development of their own industry. Already, companies such as SMIC are working on developing technological processes and optimizing the quality of chips.

3. Using intermediaries and workarounds: Under sanctions, Chinese companies may continue to look for various workarounds to gain access to technology. In general, all this is not new for the Chinese; we have already written about this.

4. Potential dialogue and compromises: In the long term, there is a possibility that the parties may try to find a compromise to regulate the export of advanced technologies.