According to a report from the Nikkei Asian Review, multiple sources revealed that TSMC, the world’s largest contract chip maker, has stopped accepting new orders from Huawei as a response to the tightening of U.S. export control policies– The latest U.S. policy aims to further restrict Huawei’s key chip supply channel.

A person familiar with the matter said: “After the announcement of the new rules, TSMC has stopped accepting new orders from Huawei to fully comply with the latest export control regulations. But those chips already in production and orders received before the new ban were not affected. , if these chips can be shipped by mid-September, they may continue to make them.”

The U.S. Commerce Department announced on Friday that all non-U.S. chipmakers using U.S. chipmaking equipment, intellectual property or design software must obtain a U.S. government license before supplying chips to Huawei.

“It’s a tough decision for TSMC because Huawei is the company’s second-largest customer, but the chipmaker has to comply with U.S. rules,” said another person familiar with the matter.

As the world’s largest telecommunications equipment maker and second-largest smartphone maker, Huawei relies heavily on TSMC to make its advanced chip designs — including all of the mobile processors used in Huawei’s flagship smartphones. The company also manufactures chips for artificial intelligence processors and networking equipment for Huawei, which has been seen as a vital lifeline for Huawei against U.S. pressure since it was placed on a trade blacklist by the U.S. government in May last year.

This relationship with Huawei, however, has TSMC embroiled in tensions between the U.S. and China.

On the same day that the U.S. Department of Commerce announced the new export control regulations, TSMC announced that it would invest $12 billion to build a new chip factory in Arizona. U.S. Secretary of State Mike Pompeo said the move would “strengthen U.S. national security at a time when China seeks to dominate cutting-edge technology and control key industries.”

China’s Commerce Ministry said on Sunday it firmly opposed new U.S. export controls on Huawei, saying such restrictions posed a serious threat to the security of global supply chains. The Chinese Ministry of Commerce demanded that “the U.S. side immediately stop its wrongdoing and create conditions for companies to carry out normal trade and cooperation. The Chinese side will take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”

In response to a request for comment, TSMC said it “will not disclose details of customers’ orders,” adding that “TSMC has always complied with laws and applicable regulations.” The company said it was evaluating the impact of the new export control measures.

TSMC shares fell more than 2 percent in early trading Monday, while the benchmark index fell less than 1 percent.

Meanwhile, Huawei said it would make a statement on the U.S. ban at the opening of its annual analyst conference on Monday afternoon.

Huawei is TSMC’s second-largest customer (after Apple), accounting for 15-20% of its annual revenue. Huawei also accounts for as much as 20 percent of SMIC’s revenue, according to estimates by Bernstein Research.

According to documents released by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), chips that are in production before May 15 and will be shipped to Huawei by midnight on September 14 will not be subject to the new rules. All other shipments require a license.

Harry Clark, a Washington trade law expert and managing director of U.S. law firm Orrick, said contract manufacturers of chips outside the U.S. must apply for a license for any supply of chips that do not meet the above criteria. Violating these regulations could expose the companies involved to “heavy penalties from regulators,” he added.

Sources told the Nikkei Asian Review that Huawei has been preparing for such a U.S. move since late last year, which includes stockpiling more than a year of chips related to networking equipment, especially for its critical telecom equipment and Chips for carrier business.

Huawei has also explored a range of other options, including co-designing chips with its longtime supplier STMicroelectronics (ST). However, analysts have pointed out that these efforts may not immediately solve all the problems with the supply of the vital chips that are crucial for Huawei to continue to roll out world-class technology.

“The proposed regulations could be aimed at stopping Huawei’s technological advancement and suppressing China’s 5G ambitions,” analysts at Jefferies Equity Research said in a research note. “We expect China to retaliate if this materializes. “The risk of a ‘super’ cold war is increasing.”

Latest update: In response to this news, the latest Reuters report said that Huawei declined to comment, while TSMC said it would not disclose the details of the order, adding that the Nikkei report was “purely market rumors.”