By Karen Freifeld and Fanny Potkin

NEW YORK/SINGAPORE (Reuters) – The U.S. ordered Taiwan Semiconductor Manufacturing Co to stop supplying Chinese customers with advanced chips that are often used in artificial intelligence applications starting on Monday, according to a person familiar with the matter.

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

The US order, which is being reported for the first time, comes just weeks after TSMC notified the Commerce Department that one of its chips was found in a Huawei AI processor, as Reuters reported last month. Technical research firm Tech Insights took apart the product, revealing the TSMC chip and the apparent violation of export controls.

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

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

Reuters was unable to determine how the chip ended up on Huawei’s 2022 Ascend 910B, considered the most advanced AI chip available from a Chinese company.

The latest restriction affects many more companies and will allow the US to assess whether other companies are redirecting chips to Huawei for its AI processor.

As a result of the letter, TSMC notified 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 it clear that it will comply with domestic and international regulations,” Taiwan’s economy ministry said in a statement to Reuters, referring specific questions to TSMC.

A TSMC spokesman declined to comment, beyond saying it is a “law-abiding company … committed to complying with all applicable rules and regulations, including applicable export controls.”

The Commerce Department’s communication — known as the “be advised” letter — allows the U.S. to bypass lengthy rule-writing processes to quickly impose new licensing requirements on certain companies.

Ijiwei, a Chinese media site that covers the semiconductor industry, reported on Friday that TSMC has notified Chinese chip design companies that it will suspend 7-nanometer or smaller chips for AI and GPU customers starting Nov. 11.

The action comes as both Republican and Democratic lawmakers have raised concerns about the inadequacy of export controls on China and the Commerce Department’s enforcement of them.

In 2022, the Commerce Department sent notice 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 to manufactures advanced chips in China. .

The restrictions in those letters were later turned into rules that apply to companies beyond them.

The US has delayed updating rules on technology exports to China. As Reuters reported in July, the Biden administration drafted new rules on some foreign exports of chip-making equipment and planned to add about 120 Chinese companies to the Commerce Department’s list of restricted entities, including chip factories , tool manufacturers and related companies.

But despite plans for an August launch and some later tentative target dates for publication, the rules have yet to be issued.

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