US pulls TSMC’s waiver for China shipments of chip supplies

[WASHINGTON] The US has revoked Taiwan Semiconductor Manufacturing Co’s (TSMC) authorisation to freely ship essential gear to its main Chinese chipmaking base, potentially curtailing its production capabilities at that older-generation facility.

American officials recently informed TSMC of their decision to end the Taiwanese chipmaker’s so-called validated end user (VEU) status for its Nanjing site. The action mirrors steps the US took to revoke VEU designations for China facilities owned by Samsung Electronics and SK Hynix. The waivers are set to expire in about four months.

“TSMC has received notification from the US government that our VEU authorisation for TSMC Nanjing will be revoked effective December 31, 2025,” the company said in a statement. “While we are evaluating the situation and taking appropriate measures, including communicating with the US government, we remain fully committed to ensuring the uninterrupted operation of TSMC Nanjing.”

The company’s US-listed American depositary receipts slipped as much as 2.3 per cent on Tuesday (Sep 2).

Washington’s move means TSMC suppliers will have to apply for individual approvals when they want to ship semiconductor equipment and other gear covered by US export controls to its Nanjing facility, instead of the blanket authorisation they currently have because of the plant’s VEU status.

The policy change jeopardizes the China operations of some of the most important companies in the semiconductor sector, hailing from two chipmaking powerhouses that are also US allies. While US officials have said they intend to issue licences needed to keep those facilities operational, the shift introduces uncertainty about wait times to actually secure those permits.

Officials are currently working on solutions to ease the bureaucratic burden, particularly given a significant backlog of existing licence requests, people familiar with the matter said.

Compared to Samsung and SK Hynix, which house a sizable share of their production in China, TSMC’s manufacturing footprint in the world’s second-largest economy is relatively small. The company’s Nanjing site began production in 2018 and contributed a small fraction of TSMC’s total revenue last year.

The campus houses technology as advanced as 16-nanometre, which first became commercially available more than a decade ago.

The Commerce Department’s Bureau of Industry and Security, which oversees semiconductor export controls, did not immediately respond to a request for comment.

BIS announced its VEU decision for the two South Korean companies last week, saying that the US was closing “export control loopholes” that put American companies “at a competitive disadvantage.”

The agency also formally rescinded Samsung and SK Hynix’s VEU status in the federal register, a public account of US regulations – and they did the same for a VEU designation given to Intel, for a facility in Dalian, China, that SK Hynix has since acquired. That action will require US officials to process an additional 1,000 licence requests annually, according to a federal notice.

Because TSMC’s VEU status was never published in the federal register in the first place, there was not a public regulation for BIS to amend in the same way as for the other affected companies. All told, though, the net effect on TSMC, Samsung and SK Hynix is the same: When the VEU revocation takes effect, suppliers to the chipmakers’ China facilities will need to proactively seek US licences for shipments of goods that are covered by US export controls. That includes everything from advanced manufacturing gear to spare parts and chemicals that are consumed in the production process.

The situation highlights the extent of Washington’s influence in, and control over, the supply chain for electronic components that power everything from microwaves to phones to data centres training artificial intelligence algorithms – even when the plants in question are operated by three non-American companies in a foreign country.

The US has broadly limited China’s access to American materials and equipment that could be used to make advanced chips, part of a suite of controls designed to limit the Asian nation’s AI prowess. The export curbs affect sales not just to Chinese companies, but any facilities that are physically within the country – including Samsung, SK Hynix and TSMC’s plants.

Under President Joe Biden’s administration, the trio of companies secured an indefinite waiver to continue making shipments to their China facilities, so long as they comply with security requirements and disclose certain information to the US government.

That VEU designation – which US officials announced for Samsung and SK Hynix, and which TSMC publicized in an annual report – was a top priority for the chipmakers and foreign government officials, given that semiconductor plants require regular imports of supplies to keep running. BLOOMBERG