TSMC is reportedly suspending production of advanced AI chips for Chinese firms

• TSMC will stop providing Chinese customers with some of its most advanced AI chips, per reports.
• The US has been clamping down on China's access to advanced technology.

Taiwan Semiconductor Manufacturing Company has informed its Chinese customers that it will stop supplying them with its most advanced artificial intelligence chips, according to multiple reports.

From Monday, TSMC will no longer manufacture AI chips at advanced process nodes of 7 nanometers or smaller for Chinese firms, three sources familiar with the matter told the FT.

TSMC has previously supplied chips to tech giants like Alibaba and Baidu, who are leading China's efforts to create a domestic alternative to the US' Nvidia, the world's most valuable company.

Any future supply to Chinese companies would be subject to an approval process that would likely include Washington, two of the people told the FT.

TSMC is Taiwan's largest company and the world's largest dedicated independent semiconductor foundry. The decision would not have a major impact on TSMC's revenue, the people said.

The move comes ahead of a new wave of export controls on chip supplies to China, expected to be introduced by the Biden administration in the next months.

"We want to start mitigating before there are solid, structured regulations," a person familiar with the matter told the FT.

TSMC and other chipmakers are already barred from doing business with certain Chinese tech companies without US government approval. The policy is part of a number of sanctions and export controls aimed at restricting Chinese firms' access to advanced technologies in the interests of national security.

TSMC's supply chain has recently come under pressure after it was reported that the company's chips were found in products produced by Huawei Technologies, which is under US export controls.

The US Commerce Department is investigating the incident, and a source told the FT that Friday's decision was influenced by the need to tighten internal controls.

TSMC will also face a potentially difficult relationship with the US' next president.

The success of Taiwan's chip manufacturing sector is a sore point for president-elect Donald Trump. He has accused the country of taking US chip business and suggested that TSMC will move its production back home after benefiting from billions of dollars in subsidies from Washington for building manufacturing hubs in the US.

TSMC told Reuters on Friday that its US investment plan "remains unchanged."

The decision to stop providing high-powered chips to Chinese customers was "not a show for Trump but definitely designed to underscore that we are the good guys and not acting against US interests," a source told the FT.

We are a "law-abiding company and we are committed
to complying with all applicable rules and regulations, including applicable export controls," TSMC said in a statement to the FT.

TSMC did not immediately respond to Business Insider's request for comment.

News of TSMC suspending production was first reported by Chinese media site ijiwei.com.