TSMC says it cannot guarantee that its chips don't end up in China

(Image credit: TSMC)

TSMC is reportedly facing a $1 billion fine for unknowingly producing a compute chiplet for blacklisted Huawei, which put an order to the company using a proxy. The situation did not look good for the contract chipmaker, and in its most recent annual report TSMC acknowledged difficulties in monitoring how its chips are used once they leave its fabs. In other words, it cannot guarantee that the Huawei story will not repeat itself.

"Our role in the semiconductor supply chain inherently limits our visibility and information available to us regarding the downstream use or user of final products that incorporate semiconductors manufactured by us," reads a statement by TSMC in its annual report. "This constraint impedes our ability to fully ensure that semiconductors manufactured by us will not be diverted to unintended end use or end-user, including potentially by our business partners, or by third parties with an intent of circumvention."

When TSMC is contracted to produce a chip, it is supplied a GDS file that contains all the geometrical shapes, layers, and hierarchy information needed to fabricate that chip. TSMC (or any other foundry) validates the GDS file using various tools to ensure that it complies with process technology rules, and then generates photomasks to eventually make chips. At no point can TSMC determine developer of the chip, or its final destination. To that end, there is always a risk that a proxy contracts TSMC to produce a chip that will end up in a machine supplied by Huawei, which will trigger the U.S. government to fine TSMC for violation of American export controls.

"In addition, if we or our business partners fail to obtain appropriate import, export or re-export licenses or permits or are found to have violated applicable export control or sanctions laws, we may also be adversely affected, through reputational harm as well as other negative consequences, including government investigations and penalties resulting from relevant legal proceedings," TSMC stated.

Last year it turned out that TSMC fabricated a chip for a company called Sophgo using its 7nm-class fabrication process. The chip appeared to be a compute chiplet for Huawei's HiSilicon Ascend 910B/910C processor. The company apparently produced enough silicon for Huawei to assemble around a million dual-chiplet Ascend 910C processors, enough to meet Huawei's need for AI processors for about a year. Now, TSMC faces a $1 billion fine.

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Anton Shilov is a contributing writer at Tom’s Hardware. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

22 Comments Comment from the forums

A Stoner

I can understand the point about they cannot control where the chip goes once it gets into the hands of a 2nd party or a third party. They should not be responsible for that.

But they do have control over their risks of this happening. They had already produced that chip before and knew it was a Huawei design, and thus should have known to look at the buyer's background or refused to produce it based on IP rights.

What would they do if someone from AMD came to them with an nVidia chip design and asked them to produce it? My guess is that their patent attorneys would shoot that contract down in a heartbeat or faster. So, why would they allow Huawei's intellectual property to be stolen and produced for a third party without any investigations? They would not, and that investigation happened and they knew what was going on.

Someone in that decision process knew beyond any doubt that the chips were going to Huawei! The whole, oopsie, we did not know absolutely makes zero sense, and the government knows that, which is why they got hit with a significant fine.

I would allow the company to reduce the fine significantly if they handed that person(s) over to the authorities for prosecution. Chances are that they were offered that deal and refused it.
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Eximo

Not quite as straightforward as that. Huawei/HiSilicon isn't responsible for a lot of the IP they use in their chips, they license most of it. If it were a blind order how would they know that one ARM core here belongs to any specific end target? Sounds like they were also making chiplets, they were then assembled into finished products elsewhere.
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NinoPino

A Stoner said:
But they do have control over their risks of this happening. They had already produced that chip before and knew it was a Huawei design, and thus should have known to look at the buyer's background or refused to produce it based on IP rights.
Your assumption is that the design is exactly the same of the previous produced chips. Imho this is unlikely. For performance reasons and also to obfuscate the design, I suppose the new design have some changes that make a simple comparision very difficult.
The other assumption you do is that TSMC keep an archive of all the designs of hits clients. I think this is simply impossible and contractually they cannot save the client's designs beyond the production time frame.
If anybody have first hand informations on the argument, his opinion is kindly appreciated.
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DS426

So how can TSMC be fined that much when they did not knowingly manufacturer those chips for that end use?

This demonstrates why due process is important as TSMC deserves to be able to defend themselves in court (are they able to appeal this?) Investigations need to be made to identify who mislead TSMC and then that entity is fined. I realize that's not easy or straightforward, but it's not fair or just to TSMC or any node manufacturer that lands into this situation.
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Notton

Yup, there's no such thing as the perfect, impenetrable lock to keep out would-be ill-doers.
You can do all the mitigation and preventative measures in the world, and someone out there will still find a way to sneak in.

Usually the weak chain in the link is the human factor. Humans are not infallible and the only thing you can do is add safeguards to mitigate a small error from becoming a huge one.
And the kicker is, not all errors are predictable, nor preventable.
It's Murphy's law.
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wr3zzz

Sanction avoidiance are no different from money laundering. Banks are not responsible for money laundering of their account holders if the account holders have provided proper legal identification and they monitor transactions and report them based on "government mandated" flags. It's called the safe harbor rules, and the same ideas apply to all industries. Under the principle of safe harbor rules it's up to the government to tell companies specifically what flags they need to monitor and how to act.

The problem with TSMC, and many others now under MAGA, is that Trump doesn't give a crap about legal principles and only about how to exploit the technicalities in the system. He imposes huge government peanlities even if he knows the court will overturn it. Trump uses the threat of penalities and associated legal expenses companies need to defend itself at courts as well as reputational risks to get others to do what he wants. He might call it negotiation but it's really extortion. Unscruplus businesses like Trump Enterpise and despots in banana republics do it all the time using the laws to abuse people with less but very rarely goverments in rich liberal democracies will ignore safe harbor rules for good reasons.
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A Stoner

NinoPino said:
Your assumption is that the design is exactly the same of the previous produced chips. Imho this is unlikely. For performance reasons and also to obfuscate the design, I suppose the new design have some changes that make a simple comparision very difficult.
The other assumption you do is that TSMC keep an archive of all the designs of hits clients. I think this is simply impossible and contractually they cannot save the client's designs beyond the production time frame.
If anybody have first hand informations on the argument, his opinion is kindly appreciated.
It is the exact same chip...

Here is the original Tom's Hardware post on this. I have bolded and color highlighted the fact they are the exact same chip. Intellectual Property rights alone should have prevented this from happening if it was not done on purpose by TSMC.

Huawei's original HiSilicon Ascend 910, which was launched in 2019, consists of a Virtuvian AI chiplet, a Nimbus V3 I/O die, four HBM2E memory stacks, and two dummy dies. TSMC produced Virtuvian chiplets for Huawei from 2019 to September 2020, using its N7+ process technology, a 7nm-class node with some EUV layers.
After the U.S. government put Huawei on its Entity List in 2020, Huawei had to redesign its Virtuvian chiplet to make it at SMIC, which used its N+1 technology (1st Generation 7nm-class process) to build it. GPUs with the new Virtuvian chiplet are called HiSilicon Ascend 910B and have nothing to do with TSMC.

Later, Huawei developed a more sophisticated version of its Virtuvian chiplet for its Ascend 910C, which SMIC makes using its 2nd Generation 7nm fabrication technology (N+2). Contrary to the report, the Ascend 910C has only one compute chiplet. Again, the Ascend 910C has nothing to do with TSMC. As Huawei managed to deceive TSMC, the latter produced the original Ascend 910 chiplet for the company in 2023 – 2024, as discovered by TechInsights.
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hannibal

The "good" part is that eventually we pay those fines as increased prices for our computer and phone parts...

So... Congratulations to all of us who needs new electronic in coming years.
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Charles Cabbage

Punishment is easy. Solutions are hard.

Ironically, being focused on looking tough against China is sabotaging the American tech edge; TSMC's significantly increased compliance costs and delays will obviously be passed on to their majority-US customers. A real "cutting off your nose to spite your face" situation.
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craigss

Am sorry but this is ridiculous, how can a small minded man baby dictate to a private foreign company where they can and cannot supply products, can you imagine the absolute destruction should TSMC turn around and tell Trump look we disagree we are discounting products to banned countries and adding 150% to the prices of your imports, its time the whole world told this dictator to go screw
If I buy a product and then export it elsewhere how can my supplier be held responsible just how?
He is sending the whole world into a spiral of uncertainty and downfall including his own nation
Reply

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