Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chipmaker, is facing a potential fine of $1 billion or more for allegedly violating US export controls by supplying chips to Huawei for its AI processor. According to a Reuters report, the fine is related to an investigation into TSMC's export of a chip used in Huawei's Ascend 910B AI processor.

The investigation, which began in late 2024, centers around TSMC's supply of chip dies to Xiamen Sophgo Technologies, a Chinese chip designer and affiliate of Bitmain, a Bitcoin mining equipment supplier. Sophgo's chip, which incorporates TSMC's chip, was then used in Huawei's mass-produced AI accelerator, the Ascend 910B AI processor. This complex supply chain has raised concerns about the violation of US export controls, which restrict the sale of advanced technology to certain Chinese companies, including Huawei.

The Ascend 910B AI processor is considered the most advanced in its class to be made in China, with hundreds of thousands of units produced. The processor's development and production have significant implications for China's AI industry, which has been a key focus area for the country's technology development.

TSMC has maintained that it is a "law-abiding company" committed to complying with all applicable rules and regulations, including export controls. The company has stated that it has not supplied chips to Huawei since mid-September 2020 and has proactively communicated with the US Commerce Department regarding the matter. However, the investigation and potential fine suggest that TSMC may have fallen short of its compliance obligations.

The timeline of events surrounding the investigation is complex and involves multiple players. In October 2024, TechInsights, a tech research firm, disassembled Huawei's 910B AI processor and discovered a TSMC-based chipset inside, which resembled one made by Sophgo. Sophgo claimed that it was not involved in the investigation and had no direct or indirect business dealings with Huawei.

In November 2024, the US Department of Commerce ordered TSMC to halt shipments of advanced chips to Chinese customers, including Sophgo. The following month, the US Commerce Department considered adding Sophgo to the US blacklist, which would have severely restricted its ability to access US technology. In January 2025, the US added over twenty Chinese companies, including Zhipu AI and Sophgo, to the blacklist.

The potential fine and investigation have significant implications for TSMC, Huawei, and the broader technology industry. The incident highlights the complexities and risks involved in the global supply chain, particularly when it comes to advanced technology and export controls. It also underscores the ongoing tensions between the US and China in the technology sector, which have led to increased scrutiny and restrictions on trade and investment.

As the investigation continues, it remains to be seen how TSMC will respond to the allegations and what measures it will take to ensure compliance with export controls going forward. The incident serves as a reminder of the importance of robust compliance and risk management practices in the technology industry, particularly for companies operating in complex and highly regulated environments.