The U.S. has decided to revoke its special allowance for TSMC to export advanced chipmaking tools from the U.S. to its Fab 16 in Nanjing, China, by the end of the year. The decision will force the company's American suppliers to get individual government approvals for future shipments. If approvals are not granted on time, this could could affect the plant's operations.
No more waivers for TSMC's Fab 16
Until now, TSMC benefited from a general approval system — enabled by its validated end-user (VEU) status with the U.S. government — that allowed routine shipments of tools produced by American companies like Applied Materials, KLA, and LAM Research without delay. Once the rule change takes effect, any covered tool, spare part, or chemical sent to the site will need to pass a separate U.S. export review, which will be made with a presumption of denial.
"TSMC has received notification from the U.S. government that our VEU authorization for TSMC Nanjing will be revoked effective December 31, 2025," a statement by TSMC sent to Tom's Hardware reads. "While we are evaluating the situation and taking appropriate measures, including communicating with the U.S. government, we remain fully committed to ensuring the uninterrupted operation of TSMC Nanjing."
TSMC currently operates two fabs in China: a 200-mm Fab 10 in Shanghai, and a 300-mm Fab 16 in Nanjing. The 200-mm fab produces chips on legacy process technologies (such as 150nm and less advanced) and flies below the U.S. government's radar. By contrast, the 300-mm semiconductor production facility makes a variety of chips (e.g., automotive chips, 5G RF components, consumer SoCs, etc.) on TSMC's 12nm FinFET, 16nm FinFET, and 28nm-class production nodes and logic technologies of 16nm and below are restricted by the U.S. government even though they debuted about 10 years ago.
Business with customers from China accounted for 11% of TSMC's $90.08 billion net revenue in 2024, or roughly $9.91 billion, which is a lot of money. However, it is hard to estimate how much TSMC earned specifically from Fab 16.
Switching to China-made tools
One of the ways for TSMC to keep its Fab 16 in Nanjing running without U.S. equipment is to replace some of the tools it imports from the U.S. with similar equipment produced in China. However, it is unclear whether it is possible, particularly for lithography.
TSMC's 16nm technology relies on highly precise etch, deposition, lithography, metrology, and ion implantation tools produced by American and European companies. Although China-based AMEC, Kingsemi, Naura, and Piotech have made quite some progress with their cleaning, deposition and etching tools, they hardly currently offer full toolsets with the yield or precision that TSMC requires for commercial-grade 16nm production. Also, we do not know of any company in China that can produce lithography systems for a 16nm-class process technology.
Even if Chinese firms could supply some tools, swapping out even one tool type in a mature process line integration with automation and fab control systems as well as involves full requalification of recipes and parameters. Furthermore, potential changes to yield and reliability can affect cycle time and financial targets of the fab.
In a normal situation, TSMC would likely resist such disruption, especially for legacy nodes meant to be cost-effective, but it may be forced to switch at least some of its tools even despite the fact that it cannot fully replace American and European tools at its Fab 16 in China.
Insignificant impact on TSMC, but good news for SMIC and HuaHong
The U.S. government has already removed similar permissions for Samsung and SK Hynix. However, compared to Samsung and SK hynix — both of which have a large manufacturing presence in mainland China — TSMC's Fab 16 footprint there is relatively limited (i.e., well below 10% of revenue, which is still a lot in dollar terms). To that end, even if TSMC is forced to halt operations at Fab 16 or reduce its output severely, the impact on the world's No. 1 contract chipmaker will be significantly less severe than on Samsung and SK hynix.
If TSMC is forced to halt or drastically reduce output at its Nanjing Fab 16, the ripple effects would be favorable to Chinese foundries like SMIC and Hua Hong as China-based customers will have to reallocate their production to SMIC (which offers 14nm and 28nm) or HuaHong (which has a 28nm node), which will boost their utilization and balance sheet (assuming of course they have enough capacity).
Furthermore, a forced TSMC slowdown in China will validate People's Republic's push for semiconductor self-sufficiency, which could mean increased subsidies for chipmakers and tool makers.
Follow Tom's Hardware on Google News to get our up-to-date news, analysis, and reviews in your feeds. Make sure to click the Follow button.
