Taiwan Semiconductor Manufacturing Co. has lost a license that allowed it to export American chipmaking equipment to its fabs in China.

TSMC announced the development today.

In 2022, the Biden administration rolled out regulations that limited exports of American chipmaking equipment to China. Making such shipments required companies to obtain a license under the so-called Validated End User, or VEU, program. The program is operated by the U.S. Commerce Department’s Bureau of Industry and Security.

TSMC obtained its VEU license shortly after the export controls went into effect. The company said in a statement today that the Commerce Department has revoked the license. As a result, TSMC must apply for permission to send American manufacturing equipment to its facilities in China.

The company operates two fabs in Shanghai and Nanjing. The latter facility, which is the more advanced of the two, was built in 2018 at a cost of $3 billion. In 2021, TSMC committed another $2.88 billion to doubling the plant’s chip manufacturing capacity.

The Nanjing fab reportedly makes chips for consumer electronics, vehicles and 5G telecommunications equipment. The newest manufacturing technology used in the plant is TSMC’s 12-nanometer node, which debuted nearly a decade ago. The facility also includes production lines based on older processes.

The Taiwanese company uses hardware from several U.S. equipment suppliers to power its fabs. One of the largest companies on the list, Applied Materials Inc., makes machines for the deposition and etching phases of the chip production workflow. The company’s systems can deposit various materials on a silicon wafer and then form them into transistors.

TSMC also counts Milpitas, California-based KLA Corp. as a supplier. The latter company makes equipment for monitoring the reliability of chip production lines. Shares of KLA and Applied Materials dropped 3% and 2%, respectively, today on the revocation of TSMC’s VEU authorization.

“While we are evaluating the situation and taking appropriate measures, including communicating with the US government, we remain fully committed to ensuring the uninterrupted operation of TSMC Nanjing,” TSMC said in a statement today.

The Commerce Department previously revoked the VEU licenses of SK hynix Inc. and Samsung Electronics Co., the world’s two largest memory suppliers. Officials stated at the time that the companies may continue operating their fabs in China, but won’t be permitted to make upgrades or add manufacturing capacity. SK hynix maintains a flash chip facility in Nanjing that it bought from Intel Corp. a few years ago.

It’s unclear how the VEU revocation will affect TSMC’s financial performance. The chipmaker logged a 61% year-over-year jump in profits last quarter thanks partly to increased demand for artificial intelligence accelerators. Its revenue rose 38%, to $31.7 billion, in the same time frame.

Photo: TSMC