Editor’s note: Samsung and Intel are the other two giant smartphone processor makers but their capacity is already tied up to Samsung and Apple phones. That leaves the Taiwanese contract chipmaker TSMC as the only company with the technology and capacity to meet Huawei’s needs. TSMC’s withdrawal from doing business with Huawei would deal close to a mortal wound to its smartphone business, but it would hurt TSMC ⁠just as much, which is why it is likely to defy US pressure. You do have to give the Empire credit though, for once it has identified a key vulnerability.

The US government is pushing Taiwan to restrict its biggest chipmaker from producing semiconductors for Huawei, the Chinese telecoms group, and to institute stricter controls on technology exports to China.

Washington has over the past year repeatedly asked the government of president Tsai Ing-wen to restrain Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chipmaker, from selling chips to Huawei, according to Taiwanese and US government officials.
Last month, a US official told Taiwanese diplomats in Washington that chips made by TSMC for Huawei were going straight into Chinese missiles pointing at Taiwan — a statement intended as a “metaphor” illustrating the risks of supplying China.

The move comes as Washington seeks to plug loopholes in its ban on selling to Huawei, part of a broader effort to ensure secure supplies for the US defence sector and to stem China’s rise as a technology power. The US concerns relate to chips that US companies are no longer allowed to sell to China.

China has been stepping up efforts to transfer technology between civilian industry and the military, heightening US concerns about supply chains.

“US officials often have conversations with Taiwan interlocutors about the security and end-use of their technology supply chains. We have similar general export control and non-proliferation conversations with many partners,” the official said.

“In this particular case, we have a partner that is under a direct military threat from China, and is also one of the few places that produce certain technologies China needs to support its military ambitions.”

TSMC has received a boost from Washington’s blacklisting of Huawei, which limits some US companies from selling to the Chinese company. China accounted for about 20 per cent of TSMC’s revenue in the third quarter, and Huawei constitutes almost half of that, estimates Randy Abrams, head of regional semiconductor research at Credit Suisse.

Industry experts remain sceptical that Washington can force Taiwan’s hand. The Trump administration’s campaign to convince other countries to ban Huawei from their 5G networks has had patchy success.

“Given Washington’s focus on competition with China and the role of semiconductors in things like 5G and advanced military capabilities, I expect the administration and Congress to increase their scrutiny of the export of advanced chips to China from Taiwan and other countries like Japan and South Korea,” said Eric Sayers, vice-president at Beacon Global Strategies, a security advisory firm in Washington.

Taipei declined to comment on the US demands. Alex Huang, Ms Tsai’s spokesman, would only confirm that the US had discussed technology industry issues of mutual concern. “Taiwan’s technology industry strictly respects international rules and continues to co-operate with major countries including the US,” he added.

While Washington recognises that Taiwan is unlikely to rein in TSMC ahead of January’s presidential election, the administration said that additional export controls on chip trade with China should be a next step for the country. “We expect that Taiwan will take a closer look at those considerations in the near future,” the US official said.

Source: Financial Times