TSMC halts chip supply to customer after finding it in Huawei product, source says

TAIPEI (Reuters) -Taiwan Semiconductor Manufacturing Co has suspended shipments to a customer after it discovered that one of its chips supplied to the client ended up in a Huawei product, according to a Taiwan official familiar with the situation.

About two weeks ago, TSMC suspended shipments to the client and began a detailed investigation, the trade and economic official said, speaking on condition of anonymity given the sensitivity of the situation.

The company has notified the U.S. and Taiwanese governments, the official said as it was an “important warning event” within TSMC, and can, at its earliest, be traced back to Oct. 11.

The official did not identify the client TSMC had cut off. TSMC declined comment.

A second official told Reuters that TSMC had not informed Taiwan’s government of the name of the client. TSMC did not immediately respond to a request for comment.

TSMC had alerted U.S. officials after tech research firm TechInsights took apart a Huawei product and found one of TSMC’s chips, Reuters reported on Tuesday, in a possible violation of U.S. export restrictions.

The U.S. curbed the export of advanced artificial intelligence chips to China two years ago, citing the need to limit the Chinese military’s capabilities.

Huawei has been a primary target of the U.S. government’s efforts to escalate the use of export controls to keep Chinese companies from obtaining, designing or manufacturing advanced semiconductors.

Still, Chinese entities have been trying to circumvent the restrictions and have used cloud services provided by companies such as Amazon (NASDAQ:) to access advanced U.S. chips and AI capabilities, Reuters reported earlier this year.

Taiwan’s government, wary of its giant neighbour given repeated military and other threats, has its own export control to prevent advanced chips from being made in China, and Taiwan officials say they take compliance with U.S. rules seriously.