Taiwan Semiconductor Manufacturing Co. (TSMC) disclosed in its latest annual report that it faced difficulties ensuring its chips don’t end up with Huawei, which is under US sanctions.

The company said it cannot fully track how its chips are used after being sold to clients, making it hard to prevent third-party diversions.

TSMC chips are often built into products by other companies, including major clients like Nvidia and Qualcomm, making full compliance challenging.

After learning in 2024 that its chips reached Huawei via a third party, TSMC halted shipments and reported the incident to US and Taiwanese authorities.

The US government has tightened restrictions on China’s access to advanced technologies, with new regulations introduced earlier this month targeting AI chips.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Semiconductor “ghost trails” reveal persistent sanctions evasion challenges

TSMC’s disclosure about limited supply chain visibility highlights a problem affecting the entire semiconductor industry, as authorized chips find unauthorized destinations through complex intermediaries.

The Huawei Ascend 910B AI chip case demonstrates how sophisticated these evasion networks have become, with companies like Sophgo Technologies and Singapore-based PowerAir allegedly involved in rerouting advanced silicon to sanctioned entities.

This pattern of sanctions circumvention isn’t new. As early as 2019, industry analysts observed Huawei stockpiling components and placing large orders through HiSilicon to prepare for potential supply chain disruptions.

The U.S. blacklisting of 16 Chinese firms in the latest enforcement action shows regulators are increasingly targeting not just end users but the entire “middle layer” ecosystem that facilitates chip diversion.

For semiconductor manufacturers, tracing chip journeys has become extraordinarily difficult due to legitimate multi-tier distribution networks where components change hands multiple times before reaching end products.

2️⃣ The “25% threshold” creates compliance headaches for global chipmakers

TSMC’s compliance challenges stem partly from a critical U.S. export control regulation stipulating that foreign-made items containing more than 25% U.S.-origin content are subject to the same restrictions as U.S. products.

This threshold creates a complex compliance challenge for TSMC, which relies heavily on American manufacturing equipment and technology to produce its advanced chips.

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