The TSMC Huawei chip investigation is heating up. Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, could face a U.S. penalty exceeding $1 billion. The issue centers on a chip TSMC produced for Chinese firm Sophgo, which allegedly ended up in Huawei’s Ascend 910B AI processor.
According to sources familiar with the matter, the U.S. Department of Commerce is investigating whether this transaction violated export control rules. Sophgo’s chip, made by TSMC, matched a key component found in Huawei’s high-end AI system. The sources requested anonymity due to the sensitivity of the case.
Huawei, long accused of violating trade sanctions and stealing technology, is on the U.S. Entity List. This restricts its access to goods involving U.S. technology. Because TSMC uses American tools in its manufacturing process, its operations in Taiwan fall under U.S. export control jurisdiction.
TSMC allegedly produced nearly three million chips that mirrored Sophgo’s design. Many of these chips likely reached Huawei, according to Lennart Heim, a researcher at the RAND Corporation tracking Chinese AI development.
Under U.S. law, export violations can trigger fines of up to twice the value of the transactions involved. This formula could push TSMC’s penalty beyond $1 billion, depending on how the Commerce Department assesses the case.
Importantly, researcher Heim stated that TSMC should not have produced the chip given its AI-specific design and Sophgo’s China-based location. The risk of the chips being diverted to Huawei, a restricted entity, should have been anticipated.
TSMC’s U.S.-listed shares erased earlier gains and turned negative following the news. The case also comes at a sensitive time for U.S.-Taiwan relations. The two governments are beginning new trade talks after President Donald Trump imposed a 32% tariff on Taipei’s imports last week. Although chips were excluded, Trump said his administration is reviewing whether to extend tariffs to semiconductors.
Back in March, TSMC pledged a $100 billion investment in the U.S., including five new chip fabrication plants. However, the current investigation clouds the company’s U.S. expansion plans.
While no official action has been taken yet, the Commerce Department typically begins with a proposed charging letter. This document details the violations, estimated penalties, and gives the accused company 30 days to respond.
So far, both TSMC and the Commerce Department have issued cautious statements. TSMC’s spokesperson, Nina Kao, said the company has not supplied chips to Huawei since September 2020 and is cooperating fully with the investigation. She stressed that TSMC is committed to full legal compliance.
Taiwan’s Economy Minister Kuo Jyh-huei echoed this sentiment. Speaking to reporters in Taipei, he described TSMC as a law-abiding company. However, he added that his ministry had not received any formal notification of a U.S. fine.
Meanwhile, Washington is signaling more aggressive enforcement. U.S. Commerce Secretary Howard Lutnick recently said the administration would push for stronger penalties on export violations. He warned that national security threats must be met with tough measures, including steep fines.
Jeffrey Kessler, Under Secretary for Industry and Security, also raised concerns at his Senate hearing in February. He called reports of TSMC chips in Huawei’s AI systems “a huge concern” and promised “strong enforcement.”
Such a large fine would be rare, though not unprecedented. Last year, the U.S. imposed a $300 million penalty on Seagate for shipping over $1.1 billion worth of hard drives to Huawei.
TSMC first drew scrutiny after TechInsights, a Canadian research firm, disassembled Huawei’s Ascend 910B and found a chip die traced back to TSMC. Following that revelation, the Commerce Department ordered TSMC to halt shipments of 7nm or more advanced AI chips to China.
By January, the U.S. had added Sophgo to the same restricted list as Huawei. Sophgo previously denied any business ties to Huawei, but has not responded to recent inquiries.
Huawei’s Ascend 910B AI chip is viewed as the most advanced mass-produced chip in China’s AI ecosystem. It competes with products from California-based Nvidia, and its existence shows China’s push to reduce dependence on U.S. chipmakers.
