What's happening: Taiwanese chip giant TSMC will stop making advanced AI chips for Chinese customers, including major tech firms ByteDance, Alibaba, and Baidu, starting November 11. This move, confirmed by multiple sources, comes as the US ramps up its export control measures to curb China's AI ambitions.
Why it matters: TSMC's decision could hit China's AI sector hard. The affected chips—7nm or smaller nodes—are critical to powering AI models used by ByteDance, Alibaba, and Baidu for their AI-driven platforms. Without access to TSMC, these companies may face significant setbacks in their AI capabilities, relying on domestic chipmakers that lag far behind in technology.
Backdrop: The decision aligns with the upcoming update of US export controls aimed at limiting China’s access to advanced technology. TSMC's choice to comply is partly motivated by ongoing scrutiny from US regulators over how its chips ended up in Huawei devices, despite US sanctions.
- TSMC has communicated to Chinese clients that any future AI chip production will need US approval.
- The US Commerce Department is preparing new regulations, expected in December, which could make TSMC's compliance even more stringent.
The Trump Effect: The return of Donald Trump to the US presidency has added pressure. Trump has criticized Taiwan's role in the semiconductor supply chain, urging TSMC to bring more production to the US. TSMC's decision could be seen as a preemptive move to avoid political fallout.
What it means for China: Major Chinese players like ByteDance and Baidu are in a tight spot. Baidu, for instance, had been working on its Kunlun AI chips, designed to handle generative AI workloads and made by TSMC. Now, these plans face uncertainty.
- Chinese chipmakers may try to fill the gap, but they currently lag behind TSMC's manufacturing capabilities.
- The shift will likely lead to increased costs and slower development cycles for China’s AI sector.
Big picture: TSMC's decision is a significant blow to China’s AI strategy, adding yet another layer to the ongoing US-China tech rivalry. For TSMC, staying in line with US regulations may help it maintain access to the American market, but it risks losing business in China.
- Analysts predict a limited financial impact on TSMC for now, given the relatively small share of revenue from these Chinese AI projects.
- However, the global chip supply chain faces further fragmentation as geopolitics increasingly dictate where chips can be made and by whom.
The bottom line: TSMC halting AI chip production for China underscores how geopolitics and technology are now inseparable. With the US tightening control over key technologies, China’s pursuit of cutting-edge AI development is taking a major hit.