By Karen Freifeld and Fanny Potkin

NEW YORK/SINGAPORE (Reuters) – The United States has ordered Taiwan Semiconductor Manufacturing Co to halt its deliveries of advanced chips to Chinese customers from Monday, often used in artificial intelligence applications, according to a source close to the case.

The Commerce Department sent a letter to TSMC imposing export restrictions on certain sophisticated chips, 7-nanometer or larger in design, destined for China and that power the AI ​​accelerator and graphics processing units (GPUs). ), the person said.

The U.S. order, which is being reported for the first time, comes just weeks after TSMC informed the Commerce Department that one of its chips had been found in a Huawei AI processor, as Reuters reported last month. Technology research firm Tech Insights had taken apart the product, revealing the TSMC chip and an apparent violation of export controls.

Huawei, at the center of the U.S. action, is on a restricted trade list, which requires suppliers to obtain licenses to ship goods or technology to the company. Any license that could help Huawei’s AI efforts would likely be denied.

TSMC suspended deliveries to China-based chip designer Sophgo after its chip matched the one found on the Huawei AI processor, sources told Reuters last month.

Reuters could not determine how the chip ended up on Huawei’s Ascend 910B, released in 2022, considered the most advanced AI chip available from a Chinese company.

The latest crackdown hits many more companies and will allow the United States to assess whether other companies are diverting chips to Huawei for its AI processor.

Following that letter, TSMC informed affected customers that it was suspending chip shipments starting Monday, the person said.

The Commerce Department declined to comment.

“TSMC has had regular discussions with the government on export control issues and has made clear that it will comply with domestic and international regulations,” Taiwan’s Ministry of Economy said in a statement to Reuters, referring questions specific to TSMC.

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

The Commerce Department’s communication – known as a “is informed” letter – allows the United States to bypass lengthy rule-writing processes to quickly impose new licensing requirements on specific businesses.

Ijiwei, a Chinese media site covering the semiconductor industry, reported Friday that TSMC has informed Chinese chip design companies that it will suspend chips 7 nanometers or smaller for AI and GPU customers from November 11.

The move comes as Republican and Democratic lawmakers have raised concerns about insufficient export controls to China and their enforcement by the Commerce Department.

In 2022, the Commerce Department sent advisory letters to Nvidia and AMD limiting their ability to export top AI-related chips to China, and to chip equipment makers like Lam Research, Applied Materials and KLA to restrict tools for making advanced chips in China. .

The restrictions in these letters were later transformed into rules applicable to other businesses.

The United States has been slow to update its rules on technology exports to China. As Reuters reported in July, the Biden administration drafted new rules on certain foreign exports of chipmaking equipment and planned to add about 120 Chinese companies to the Commerce Department’s restricted entity list, including including chip manufacturing plants, tool makers and related companies.

But despite plans for an August release and tentative target dates for release, the rules have still not been released.

(Reporting by Karen Freifeld and Fanny Potkin; additional reporting by Ben Blanchard in Taipei; editing by Chris Sanders and Chizu Nomiyama)