As of Monday, TSMC will halt shipments of certain advanced chips to select Chinese clients in accordance with a directive from the U.S. Department of Commerce that imposes export restrictions on these products, as reported by Reuters on Sunday.
Analysts indicated that while this action may cause short-term challenges for Chinese companies engaged in designing chips for artificial intelligence accelerators and graphics processing units, it could ultimately benefit the domestic semiconductor industry due to the limited alternatives available.
During trading on Monday, the CSI Semiconductor Index rose by over 6%, reaching its highest level since December 20, 2021, while the CSI Integrated Circuits Index increased by 5%. Shares of SMIC, China's largest semiconductor foundry and a primary alternative to TSMC, saw an increase of more than 4%.
According to a note from Chinese brokerage Cinda Securities published on Sunday, "In the medium to long term, this will necessitate a reorganization of the supply chain, heighten the demand for domestic advanced production capabilities, and foster technological advancements in upstream semiconductor equipment and materials."
In recent years, numerous Chinese technology companies and chip designers have aimed to create their own advanced processors following U.S. sanctions against Huawei Technologies and restrictions on companies like Nvidia and AMD from supplying their most advanced chips to China.
Many of these firms depend on TSMC, the world's foremost contract chipmaker, for manufacturing. TSMC reported that 11% of its revenue in the third quarter originated from China.
The U.S. has implemented export restrictions on TSMC chips with designs of 7 nanometers or more advanced, according to Reuters.
The sole foundry in China capable of manufacturing chips at the 7 nm process node is SMIC, recognized for its collaboration with Huawei in producing chips for its latest smartphone models, including the Mate 60 and Pura 70.
Analysts indicate that SMIC has been able to produce these advanced chips by utilizing equipment from suppliers such as ASML from the Netherlands and Applied Materials from the United States, which it successfully acquired prior to the implementation of U.S. sanctions.
Nonetheless, SMIC has encountered challenges in increasing production due to U.S. export restrictions that prevent it from obtaining the necessary equipment for advanced chip fabrication, while domestic alternatives are not yet available to meet these needs.
According to a report by Reuters in February, SMIC has had to focus on manufacturing AI chips for Huawei instead of smartphone chips due to production limitations, as the former is considered to be of greater strategic significance.