TSMC terminated a business relationship with a customer in mid-October after discovering that semiconductor chips produced for the company were found in Huawei products, a person familiar with the matter said. TSMC has notified the US and Taiwanese governments about the incident and is investigating the matter further, the person said.

It’s unclear whether that TSMC customer is acting on behalf of Huawei, or where it is based. But the development sheds light on recent reports — including from tech publication The Information — that Washington is investigating whether TSMC is manufacturing chips for the Chinese company, which is on a U.S. blacklist.

Huawei has been on the US trade sanctions list since 2020 and is banned from doing business with TSMC and other chipmaking partners without a US government license. Over the past year, Huawei has relied on local company Semiconductor Manufacturing International Corp (SMIC) for manufacturing, including the 7-nanometer (nm) chips it unveiled last August in Huawei smartphones.

Still, U.S. officials have questioned SMIC’s ability to produce 7nm chips at scale, and Huawei’s use of TSMC’s output for its latest AI chip could be a sign that supports that narrative.

TSMC notified U.S. officials after tech research firm TechInsights disassembled a Huawei product and found one of TSMC’s chips, Reuters reported on Tuesday. The U.S. restricted exports of advanced artificial intelligence chips to China two years ago, citing national security concerns.

Huawei is a key target of the U.S. government’s increased use of export controls to prevent Chinese companies from acquiring, designing, or manufacturing advanced semiconductors. TSMC said it had stopped selling to Huawei since September 15, 2020, and reiterated that when asked about the TechInsights report.

However, Chinese companies have tried to circumvent the restrictions and have used cloud services provided by companies like Amazon to access advanced US chips and AI capabilities.

(According to Reuters)