TSMC Loses US China Waiver

Key Concepts:

• TSMC Nanjing facility: A TSMC manufacturing plant in Nanjing, China, utilizing older 16nm chip technology.
• Validated End User (VEU) agreement: A blanket waiver allowing companies to ship goods and materials into China for chipmaking without individual licenses.
• US Export Restrictions: US government efforts to limit China's access to advanced technology, even for foreign companies operating within China.
• ASML: A European company that supplies lithography systems critical for chip manufacturing.
• 16nm Technology: A relatively older chip manufacturing process node, having been in the market for about a decade.
• License Requirements: The need for suppliers to obtain individual licenses from the US government to ship goods to TSMC, Samsung, and SK Hynix facilities in China.

TSMC Nanjing Facility and US Restrictions

The discussion centers on the impact of renewed US restrictions on TSMC's facility in Nanjing, China. These restrictions, mirroring those imposed on Samsung and SK Hynix, require suppliers to obtain licenses for exporting goods and materials to these facilities. The previous blanket waiver, known as the Validated End User (VEU) agreement, has expired, necessitating individual license applications.

Symbolic Significance and Revenue Impact

While the TSMC Nanjing facility accounts for a relatively small fraction of TSMC's overall revenue, the restrictions are symbolically significant. This is because they reflect the US government's broader strategy to limit China's access to advanced technology, even when foreign companies are manufacturing within China.

Impact on Suppliers and Potential Delays

The restrictions will likely create "speedbumps" for suppliers, including chemical makers and potentially ASML, a European company that supplies lithography systems. The need to process an additional 1000 or so licenses annually will likely cause delays, especially given staffing and budget constraints within the US government.

Technology Grade and Expansion Limitations

The TSMC Nanjing facility uses older 16nm chip technology, which has been in the market for about a decade. The US Commerce Department has indicated that license approvals will not be granted for equipment or supplies intended to upgrade or expand capacity at these facilities. The goal is to maintain the status quo rather than allowing technological advancements at these plants.

Commerce Department's Stance

The Commerce Department's stance is that approvals will not facilitate upgrades or expansions, focusing on maintaining current operational levels.

Conclusion

The renewed US restrictions on TSMC's Nanjing facility, along with similar measures for Samsung and SK Hynix, represent a significant escalation in the US government's efforts to limit China's access to advanced technology. While the immediate revenue impact on TSMC may be limited, the restrictions will likely cause delays for suppliers, increase administrative burdens, and prevent technological upgrades at the Nanjing facility. The move underscores the US government's determination to prevent China from advancing its chip manufacturing capabilities, even at the expense of foreign companies operating within China.