TSMC’s 2nm Production Line to Exclude Mainland Chinese Equipment

TSMC Steps Away from Chinese Chipmaking Equipment in Advanced Fabs, Citing U.S. Regulatory Concerns

Taipei, Taiwan – In a move signaling growing geopolitical influence on the semiconductor industry, Taiwan Semiconductor Manufacturing Co. (TSMC) is reportedly phasing out the use of chip manufacturing equipment from mainland Chinese suppliers in its most advanced fabs. This strategic shift, according to a Nikkei Asia report citing sources familiar with the matter, is designed to sidestep potential disruptions stemming from anticipated U.S. government restrictions.

The decision impacts TSMC’s cutting-edge 2nm facilities. The company will not incorporate Chinese-supplied equipment in these fabs.

TSMC is slated to begin 2nm production at its Hsinchu facility by the end of this year, followed by its Kaohsiung plant. A third 2nm fab is also planned for its Arizona site.

Sources indicate this stems from a potential U.S. regulatory framework that could prohibit chipmakers receiving federal funding or support from utilizing equipment manufactured by Chinese entities, heightening concerns amidst ongoing U.S.-China tech tensions.

The proposed “Chip Equipment Act,” spearheaded by lawmakers like Senator Mark Kelly, seeks to prevent recipients of U.S. federal subsidies and tax credits from procuring equipment from “foreign entities of concern,” a definition widely perceived to encompass mainland Chinese vendors.

This strategic pivot underscores how leading chip manufacturers are navigating increasing geopolitical headwinds, extending the focus of onshoring and supply chain resilience beyond mere production to encompass a broader spectrum of the semiconductor ecosystem.

The 2nm Roadmap: Ditching Chinese Equipment

According to Nikkei Asia, TSMC aimed to remove Chinese-supplied equipment from its 3nm process, first used in Taiwan in 2022, as the company plans to bring 3nm production to Arizona. This preemptive measure was to avoid potential U.S. regulatory uncertainties.

Switching out qualified vendors, even for non-critical steps, can be a lengthy and resource-intensive endeavor. These changes carries inherent risks to yield and overall production quality.

Consequently, TSMC apparently decided to tackle the issue head-on beginning with the more advanced 2nm node as it moves toward volume production.

TSMC Chairman and CEO C.C. Wei has previously stated the company is accelerating its semiconductor fab construction in Arizona. Post expansion, cutting-edge processes – defined as 2nm or more advanced – could comprise around 30% of TSMC’s U.S. output.

Meghan Harris, a semiconductor expert and former U.S. government senior official, stated, “The U.S. needs to start taking actions to prevent mainland Chinese equipment makers from entering… That [risk] is closer than the U.S. recognizes: Some [Chinese] equipment is indeed close to becoming competitive.”

“The Chip Equipment Act is a no-brainer action for Congress to take, but even that has been hard to pass in the past few years because of pushback from [some] industry folks… The U.S. needs to block China from being able to indigenously produce tools by controlling access to critical components, and at very least block Chinese equipment makers from U.S. fabs—but preferably other markets as well,” Harris added.

Chinese chipmakers have been increasingly integrating domestically produced equipment.

According to Nikkei Asia analysis, lithography remains the domain of Dutch firm ASML, an area where China has yet to develop a viable substitute.

However, Chinese firms have made notable progress in creating localized solutions in other segments. China’s largest semiconductor equipment manufacturer, Naura Technology Group, is now the world’s sixth-largest equipment maker after ASML, Applied Materials, TEL, Lam Research, and KLA.

Potential Impact on Chinese Equipment Manufacturers

TSMC’s earlier advanced node lines have used equipment from Chinese manufacturers including etching equipment from Advanced Micro-Fabrication Equipment Inc. (AMEC) and related equipment manufactured by Mattson Technology (controlled by ACM Research).

AMEC, established in 2004 and headquartered in Shanghai, specializes in the research, production, and sales of high-end semiconductor equipment.

Its core offerings include etching equipment, thin film deposition equipment, metrology equipment, and equipment for flat panel displays. Prior reports suggest AMEC’s semiconductor etching equipment had been integrated into TSMC’s 3nm process lines.

Mattson Technology, established in 1997, supplies semiconductor manufacturing equipment, including dry strip, dry etch, RTP, and MSA equipment. In 2016, ACM Research acquired Mattson Technology.

Notably, on Aug 13th, ACM Research accused Applied Materials of poaching two former Mattson employees who were later listed as key inventors on a patent filed by Applied Materials in China.

ACM Research argued the patent disclosed core technological secrets jointly held with Mattson regarding plasma generation and processing methods. ACM Research has filed a lawsuit against Applied Materials in Beijing Intellectual Property Court, seeking RMB 99.99 million in damages.

Focus on Localized Material Supply Chains

Sources revealed to Nikkei Asia that TSMC is also investigating all chip-making materials, such as chemicals, to lessen reliance on Chinese suppliers in its fabs in Taiwan and the United States.

According to the “Sustainability Report” published on August 22 reported by the Taiwanese media, “工商时报”, TSMC has been promoting a localized supply chain in recent years.

For example, in 2024, the proportion of indirect raw materials procured by TSMC in Taiwan reached 65%, exceeding the original target of 64.9%; the proportion of localized procurement of indirect raw materials in TSMC’s overseas wafer fabs also reached 64.6%, exceeding the original target of 63.6%. Under the sustainable supply chain management framework, TSMC has set clear phased goals.

Regarding localized procurement, TSMC stated that it is working towards increasing the proportion of localized procurement of indirect raw materials in Taiwan to 68% by 2030; the proportion of localized procurement of indirect raw materials worldwide is expected to reach 67.5% by 2030, reflecting TSMC’s determination to deepen the local supply chain. It also reflects TSMC’s active support for local suppliers, which helps the local economy to establish a more resilient semiconductor industry ecosystem.

TSMC pointed out that the procurement of major raw materials follows four major directions: “multiple material sources, quality control, localized procurement, and sustainable operations”, and formulates a complete management action plan to ensure the stable operation of the supply chain.

For this reason, TSMC continues to promote or maintain the proportion of local procurement; supports local suppliers to improve technology and quality, reduce costs and carbon emissions, thereby increasing the amount of local procurement.

Taking the concrete used by TSMC to build factories in Taiwan as an example, in addition to the fact that the main suppliers are all local Taiwanese concrete companies, most of the cement used is also produced in Taiwan.

Supply chain operators observed that in recent years, TSMC has obviously been actively promoting this, especially in the 2nm process, and many Taiwanese manufacturers have entered different process segments.

For example, TaiTex Advanced Materials Co., Ltd. is expected to play a key role in Nanosheet nanosheets for the silane (Si3H8) used in the thin film deposition process; Shin-Etsu Materials has also developed and supplied surface modifiers (Rinse), bottom anti-reflection layers (BARC), and edge cleaning agents (EBR) and other lithography process materials for TSMC. In the past, many of TSMC’s special gases and chemicals mainly came from Japanese manufacturers.

Regarding parts procurement, the proportion of parts currently procured by TSMC in Taiwan is 46.0%. Supply chain operators revealed that TSMC will also help them complete process improvement and quality improvement counseling. In response to the rising geopolitical risks in recent years, TSMC is also developing a diversified source of raw materials.

Concurrently, TSMC hopes closer collaboration with local suppliers in its Chinese fabs to improve production and align with Chinese policy priorities, strengthening its supply chain resilience and increasing local material sourcing where feasible.

TSMC declined to comment on the specifics of the equipment utilized in its production nodes.

“As always, TSMC’s global sourcing strategy focuses on a robust risk management system and close collaboration with suppliers to continuously develop multi-source supply solutions and diversify its global supplier base,” said TSMC.