Apple Chipmaker TSMC Stuck in the Middle Between U.S. and Chinese Officials

“Clowns to the left of me, jokers to the right, here I am, stuck in the middle with you!” The Stealers Wheel hit song “Stuck in the Middle With You” could be Apple chipmaker TSMC’s theme song these days, as it walks the line as tensions between China and the U.S. continue to grow.

Taiwan Semiconductor Manufacturing Co (TSMC) has long been an Apple provider, manufacturing the processors used in Apple’s iPhones, iPads, and Macs. Apple has been its main customer ever since 2014 when it began manufacturing the A8 chip Apple used in the iPhone 6 and iPhone 6 Plus.

Unfortunately for the Taiwanese firm, its relationship with companies based in the United States has become a bit strained in recent years. TSMC now faces a investigation by the U.S. Department of Commerce into a possible sanctions breach by the company.

The U.S. put sanctions in place in 2020, which blocked Huawei from using components from U.S. companies without explicit approval. In 2022, the U.S. added additional restrictions, severely restricting the export of any AI chips to China.

While TSMC would rather remain neutral, trying to please everyone, acting as “a semiconductor version of Switzerland”, a TSMC executive told The Information, its getting to be a tough trick to pull off.

It appears that TSMC had been contacted by a firm that hid the fact that Huawei was the client it was negotiating for. The shadow customer wanted to order a chip designed to train large language models, which is a must for artificial intelligence. The chip had a design similar to he Ascend 910B, a processor developed by Huawei.

This has resulted in an internal TSMC investigation into its Chinese customer base, as it attempts to root out any suspicious orders. The company no longer fulfills questionable chip orders, and the chipmaker has even gone so far as to destroy the chips included in any suspicious chip orders.

On the flip side, TSMC wants to preserve its relationship with China, as it operates two plants inside Chinese borders where it produces chips for multiple clients in the country. If the Chinese government places restrictions on TSMC it could severely impact TSMC’s profits, as well as the profits of the entire semiconductor industry.

Chinese officials inquired with TSMC about the U.S. investigation, and the semiconductor firm told them that the U.S. calls the shots, the report’s sources say. TSMC did assure the officials that it would do only what U.S. regulators required and nothing more.

YSMC cannot risk restrictions on its business with U.S. firms, as 65% of its revenue comes from U.S.-based clients, mainly Apple and Nvidia. TSMC’s faced with a situation where it hopes to avoid steep fines from the U.S. by proving how tough it is to identify suspicious orders, and at the same time show that it is cooperating with the U.S. in its investigations.

The U.S. Department of Commerce is known to show leniency to companies seen as cooperating in investigations.