TSMC, or Taiwan Semiconductor Manufacturing Company, is the world’s most important chipmaker. If you have a smartphone or a laptop, there’s a good chance that TSMC helped build it. Big names like Apple and Nvidia rely on TSMC to make the tiny brain-like chips that power their products.
But now, TSMC is in hot water. In its most recent annual report, the company admitted that some of its advanced chips ended up in devices made by Huawei—China’s tech giant that has been banned from getting such technology. This isn’t just a little mix-up. It could mean that TSMC’s chips were used in ways that break international rules and U.S. sanctions.
Last year, a special AI chip called the Ascend 910B, made by Huawei, was found to contain technology built using TSMC chips. This set off alarms. Why? Because Huawei has been blocked from accessing the most powerful chips due to national security concerns. TSMC says it didn’t sell directly to Huawei. Instead, the chips reached Huawei through third-party companies that acted as middlemen. These go-betweens may have used legal loopholes to sneak advanced chips into places they weren’t supposed to go.
TSMC says it found out about this and took action. It stopped shipping to the company involved and notified both U.S. and Taiwanese officials back in October. Still, the damage might already be done.
The Supply Chain Maze
To understand how this happened, you need to know how the chip world works. TSMC is what’s called a foundry. That means it builds chips for other companies but doesn’t design them. These other companies, known as fabless firms, create the blueprints. TSMC just prints them out in silicon.
Once the chips are made, they are sent off to those fabless companies, who then sell them to whoever is building devices—phones, computers, servers, or even cars. But here’s where it gets tricky: some of those buyers might be in countries that are under sanctions. Others might re-sell the chips or use them in products that end up being shipped to places like China, where companies like Huawei are not supposed to get access.
TSMC says it tries hard to follow the rules. It uses tools and tracking systems to make sure its chips don’t go to blacklisted companies. But once a chip is sold to a fabless customer, things can get murky. That customer might combine TSMC’s chip with other parts and sell the final product to yet another company. By then, TSMC has no idea where the chip ends up.
Because of this, even if TSMC never directly sold anything to Huawei, its technology still found its way into Huawei’s AI hardware. This is what worries governments—and investors.
The Growing Pressure
This case comes at a sensitive time. The U.S. recently added 16 more Chinese companies to its trade blacklist. These include firms suspected of helping Huawei get around sanctions. Two of them—Sophgo Technologies and PowerAir Pte—are believed to have helped Huawei gain access to banned chips.
Mexican Cartel La Nueva Familia Michoacana Caught in U.S. Sanctions Storm
Regulators are now pushing hard on chipmakers like TSMC and Samsung. They’re being asked to look deeper into their customer chains. That means not just checking who they sell to, but also who those customers sell to, and even who ends up using the final products. It’s a tough task. The chip world is global, complex, and fast-moving.
TSMC has said it’s increasing its compliance efforts. But it’s also clear that there are limits. When fabless customers design products that later get integrated into third-party devices, the trail becomes hard to follow. Chips might get mixed in with other components, passed through several companies, and only reappear when they show up in a finished device—sometimes too late to stop.
For investors, this news is a red flag. It shows how even the best-in-class companies can get caught up in global politics and trade disputes. As demand for powerful AI chips keeps growing, so does the risk of those chips ending up in the wrong hands.
TSMC may not have broken any rules on purpose, but the discovery that its chips made it into banned Huawei hardware shows how fragile and tangled the supply chain has become. And in a world where technology is tightly tied to national security, that’s a very big deal.
