Exclusive-US has ordered TSMC to stop shipping chips used in AI applications to China, sources told Reuters.

Author: Karen Freifeld and Fanny Potkin

NEW YORK/SINGAPORE (Reuters) – The United States has ordered Taiwan Semiconductor Manufacturing Co. to stop shipping advanced chips to Chinese customers that are often used in artificial intelligence applications. monday (NASDAQ:), according to a person familiar with the matter.

The Commerce Department said it had sent a letter to TSMC imposing export restrictions on certain sophisticated chips with advanced designs greater than 7 nanometers destined for China that power AI accelerators and graphics processing units (GPUs).

The first reported U.S. order comes just weeks after TSMC notified the Commerce Department that one of its chips was found in a Huawei AI processor, as Reuters reported last month. Technology research firm Tech Insights disassembled the product to reveal TSMC chips and apparent export control violations.

Huawei, which is at the center of the U.S. action, is on the restricted trade list, which requires suppliers to obtain a license to ship products or technology to the company. Licenses that could benefit Huawei’s AI efforts are likely to be rejected.

TSMC halted shipments to China-based chip designer Sophgo after its chips matched those found in Huawei AI processors, sources told Reuters last month.

Reuters was unable to confirm how this chip was applied to Huawei’s Ascend 910B, which is scheduled to be launched in 2022. The product is considered the most advanced AI chip available from a Chinese company.

The crackdown will hit more companies and allow the U.S. to assess whether other companies are diverting chips for AI processors to Huawei.

The source said TSMC has notified affected customers that it will stop shipping chips starting Monday.

The Commerce Department declined to comment.

A TSMC spokesperson also declined to comment beyond saying that it is a “law-abiding company…committed to complying with all applicable rules and regulations, including applicable export controls.”

Commerce Department communications, known as “notified” letters, allow the United States to quickly impose new licensing requirements on specific companies, bypassing the lengthy rule-writing process.

Ijiwei, a Chinese media site covering the semiconductor industry, reported Friday that TSMC notified Chinese chip design companies that it would discontinue 7nm and smaller chips for AI and GPU customers starting November 11.

The move comes as both Republican and Democratic lawmakers have said export controls to China are inadequate and have raised concerns about the Commerce Department’s enforcement of export controls.

In 2022, the Commerce Department ordered Nvidia (NASDAQ:) and AMD (NASDAQ:) to limit their ability to export top AI-related chips to China and sent is-informed letters to chip equipment makers such as Lam Research (NASDAQ:) and Applied Materials. (NASDAQ:) and KLA limit tools to make advanced chips to China.

The restrictions in that letter were later turned into rules that applied to companies that exceeded them.

The United States has been delayed in updating its regulations on technology exports to China. As Reuters reported in July, the Biden administration drafted new rules for some overseas exports of chip-making equipment and placed about 120 Chinese companies, including chip-making factories, tool makers and related companies, under Commerce Department restrictions. The plan was to add it to the list of legal entities.

However, despite an August launch plan and a tentative publication target date later, the rules have not yet been published.