US Likely to Implement License Requirements for Future Advanced AI Chip Tape-Out and HBM to China
Starting today, November 11, 2024, TSMC will temporarily halt the production of chips on its 7nm or more advanced nodes for most Chinese clients. This pause is said not to be a blanket ban but a measured response targeting AI training chips only. Future orders will require prior review and approval by the U.S. Department of Commerce, which will issue export licenses on a case-by-case basis. While not all advanced process node (7nm and below) orders are halted, each will be scrutinized closely before proceeding. This careful approach demonstrates the complexity of controlling advanced semiconductor sales.
The Trigger: Huawei and Evasive Channels
The halt on Chinese 7nm chip production has roots in recent concerns about Huawei's indirect acquisition of TSMC’s 7nm capacity through intermediaries. In recent weeks, Huawei reportedly circumvented U.S. restrictions by obtaining these chips via third parties, commonly referred to as “white gloves.” The issue, now under intense U.S. scrutiny, is seen as part of a broader crackdown by the U.S. Department of Commerce on advanced semiconductor technologies that could bolster China’s AI capabilities.
Heightened U.S. Pressure: Letters to Semiconductor Giants
China hardliners within the U.S. Congress are also amplifying pressure on semiconductor equipment manufacturers to reveal details about their sales to China. Key congressional figures have reached out to major players, including KLA, Lam Research, Applied Materials, Tokyo Electron, and ASML, requesting detailed lists of their transactions with Chinese customers. The letters emphasize that allowing China access to chip-making equipment could indirectly support Russia’s military ambitions and pose a threat to Taiwan’s security.
Further cementing the U.S.'s hardline stance, the Department of Commerce recently issued a formal letter to TSMC, imposing additional export restrictions on advanced semiconductor designs bound for China. According to a source familiar with the letter, the restriction specifically targets AI accelerators and high-performance GPUs, both essential for AI training and analysis. These categories of chips typically fall within the 7nm or more advanced design range, solidifying U.S. control over TSMC’s interactions with Chinese customers seeking such high-tech products.
Why TSMC is Taking Preemptive Action
There is debate regarding whether this move was instigated by U.S. orders or TSMC's own internal controls. TechNow Voice said some sources suggest the U.S. Commerce Department is pushing for a strict prohibition on all 7nm chip shipments to China. Others believe TSMC independently adopted the selective licensing approach, allowing greater flexibility to assess chip-specific risks and protect its internal controls from reputational or legal risks under U.S. law. According to Ijiiwei, senior officials from the U.S. Commerce Department were in Taiwan last week to discuss export restrictions with TSMC’s top executives, indicating at least some level of direct U.S. involvement.
TSMC’s Licensing Approach and the New Thresholds for Chinese Clients
With the new licensing requirement, not every Chinese customer using 7nm or more advanced nodes will be barred from placing orders. Consumer-focused products like mobile chips remain unaffected by the new regulations, with the focus centered on AI-related applications, particularly training-focused chips. TechNow Voice indicated that AI training chips, including high-performance GPUs, are the primary targets for these controls, due to their high potential for military and intelligence uses, whereas inferencing chips are likely to remain unrestricted.
TechNow Voice said there is also talk within the industry of four criteria that will determine if a chip requires a U.S. export license. These include:
Chips containing more than 300 million transistors.
Die sizes exceeding 300 mm².
Use of high-bandwidth memory (HBM), which is speculated to soon fall under new export controls.
Use of CoWoS (Chip on Wafer on Substrate) packaging, which is in high demand for advanced AI applications.
These thresholds are expected to impact AI training chips in particular, as such applications require large die sizes, high transistor counts, and sophisticated packaging solutions.
Potential Consequences for Chinese AI and GPU Production
The new licensing process and temporary halt are likely to accelerate China’s push for domestic AI and GPU production. Earlier this year, the Chinese government began encouraging companies to adopt domestically produced GPUs over those from Nvidia. As part of this effort, SMIC and Shanghai Huahong Microelectronics have been identified as future GPU production hubs. Although domestic capabilities in 7nm technology are still limited, the latest U.S. restrictions could prompt Chinese IC designers, including those not directly impacted by the current restrictions, to start planning contingency strategies.
SMIC’s Key Role in Domestic Semiconductor Supply
TechNow Voice argues, with demand for advanced domestic semiconductors rising, SMIC (Semiconductor Manufacturing International Corp), the only Chinese foundry with the capability of producing 7nm chips, despite capacity constraints, is expected to prioritize production for three main customer categories:
Huawei, which has grown into a singular category due to its critical importance.
Chinese CPU manufacturers, such as Hygon, Loongson, and Phytium.
GPU and AI firms including MetaX, Iluvatar, and Enflame. The other two largest AI chip companies Biren and Moore Threads are blacklisted under U.S. export control lists.
While SMIC’s resources are constrained, it’s speculated that it may be developing its advanced semiconductor equipment alongside Chinese equipment firms, aiming to achieve self-sufficiency in chip production. Given the recent crackdown, China’s chip sector is expected to accelerate its independence efforts, a move that may further intensify as Biden’s term approaches its end. In the coming months, further regulations are likely, as the Biden administration aims to close any lingering gaps that could become focal points for criticism from a potential Trump administration.
Unfinished Work in Biden’s Final Term Months
The sudden tightening of U.S. export controls reflects a notable shift in the Biden administration's approach toward China, as the president's remaining term months dwindle. The CHIPS Act money, which has not been disbursed so far, needs to accelerate processing progress.
As Trump will soon be sworn in as president, the Democratic administration appears intent on closing regulatory gaps that could be used as political leverage against them, particularly concerning Chinese export policies. In recent months, the Department of Commerce has revealed penalties on GlobalFoundries, fined $500,000 for supplying restricted technologies to blacklisted Chinese entities years prior. This, coupled with TSMC’s latest restrictions, signals the administration’s intent to prevent export loopholes that could be exploited under the next administration.