In response to mounting U.S. pressures, Taiwan Semiconductor Manufacturing Co (NYSE: TSM) faces new constraints from Washington, prohibiting advanced AI chip sales to mainland China.
The U.S. Department of Commerce recently instructed Taiwan Semiconductor to cease supplying China with sophisticated chips-of 7 nanometers or more advanced designs-that support AI and graphics processing capabilities.
This directive, which took effect on Monday, reflects ongoing U.S. efforts to limit China's access to vital technological resources, the Global Times reports.
Taiwan Semiconductor stock is trading lower Monday after the report.
Visible Alpha by S&P Global Market Intelligence data reveals that Taiwan Semiconductor's third-quarter revenue saw 11% contribution from mainland China, while North America contributed 71%.
Given China's substantial revenue to Taiwan Semiconductor, this mandate puts the chipmaker in a challenging position as it navigates between regulatory compliance and retaining business.
Analysts suggest that while Taiwan Semiconductor will likely adhere to the order, it may explore ways to negotiate specific terms, hoping to limit the impact on customers outside the AI sector.
The Economic Daily News quoted Taiwan Semiconductor insiders indicating the company is actively strategizing how to respond to these new regulations.
Ma Jihua, a telecom industry expert, told the Global Times that although Taiwan Semiconductor cannot wholly resist U.S. regulations, it will likely seek flexibility in areas less impacted by the restrictions.
He noted that, like other major semiconductor companies, Taiwan Semiconductor's dependence on the Chinese market makes it challenging to disengage entirely.
Taiwan Semiconductor issued a statement confirming its compliance with international laws and export controls, emphasizing its position as a "law-abiding" entity.
ASML Holding NV (NASDAQ: ASML), another major player in the semiconductor industry, faces similar challenges. Peter Wennink, its former CEO, has previously told the Global Times that ASML would continue selling to China despite restrictions, given that the market contributes about 30% of the company's orders.
In the past seven months, Chinese semiconductor exports reached approximately $89 billion, up nearly 26% from the previous year.
Additionally, China's domestic chip production has surged, with self-sufficiency rising from about 33% in 2013 to almost 80% by mid-2024.
Analysts told the Global Times that this domestic growth reflects China's efforts to reduce reliance on foreign suppliers as the geopolitical landscape remains uncertain.
Recently, Taiwan Semiconductor reaffirmed its commitment to a $65 billion U.S. investment despite Donald Trump's recent election and critical remarks.
The company stated it will proceed with its advanced chip production facilities in Arizona.
Trump had previously criticized Taiwan's semiconductor role and the Chips Act, favoring tariffs over subsidies.
Taiwan Semiconductor stock surged over 92% year-to-date.
Price Actions: TSM stock is down 3.88% to $193.40 at the last check on Monday.