By Alexandra Alper and Karen Freifeld

(Reuters) – The Biden administration plans to blacklist a Chinese company whose TSMC-made chip was illegally incorporated into a Huawei artificial-intelligence processor, according to a person familiar with the matter.

The Chinese company, Sophgo, drew attention after a chip found on Huawei’s Ascend 910B multi-chip system matched one it ordered from Taiwan Semiconductor Manufacturing Company.

Sophgo is the latest Chinese company slated to be punished by the U.S. for helping Huawei. This month, the Commerce Department added other companies viewed as part of Huawei’s shadow network to the U.S. Commerce Department’s restricted trade list.

Sophgo, an affiliate of bitcoin mining equipment supplier Bitmain, is in the process of being placed on the list, known as the Entity List, the source said.

Companies are added to the list for activities contrary to U.S. national security and foreign-policy interests. Exporters are then barred from shipping goods and technology to them without a license, which is likely to be denied.

China’s Huawei, a telecommunications equipment maker and technology conglomerate, was placed on the list in 2019. Since 2020, it has been a violation to ship even foreign-made chips to the company without a license.

A U.S. Commerce Department spokesperson declined to comment. 

Sophgo did not immediately respond to requests for comment. In an October statement, the company said it “has never been engaged in any direct or indirect business relationship with Huawei.”

Sophgo is a supplier to local governments and state-owned firms such as China Telecom, according to tenders reviewed by Reuters.

Over the past two years, Sophgo and Bitmain AI chips have been bought by Chinese state-run universities building AI tools and police stations looking to upgrade their surveillance capabilities, according to the tender review.

RESEARCH FIRM DISCOVERED CHIP

Tech research firm TechInsights took apart the Huawei 910B, discovered the TSMC chip and informed the chipmaker, which notified the U.S. Commerce Department, as Reuters reported in October. After determining the chip matched Sophgo’s design, TSMC suspended shipments to the company, sources have said. 

TSMC, the world’s largest contract chipmaker, said in October it has not supplied Huawei since 2020. 

A Taiwan official said that month that TSMC alerted Taiwan and U.S. authorities and began a detailed investigation. 

A TSMC spokesperson declined comment on Friday about what the investigation had turned up.

 Starting on Nov. 11, the U.S. ordered TSMC to halt shipments to China of seven-nanometer or more advanced chips that could be used in AI applications, as Reuters exclusively reported. 

Huawei said in October it has not produced any chips via TSMC since the U.S. imposed new export rules on the company in 2020. It did not immediately respond to a request for comment on Friday.  

Once hobbled by the U.S. restrictions, Huawei has since diversified and re-emerged at the center of China’s AI-chip ambitions. 

 The company’s Ascend 910B, released in 2022, is viewed as the most advanced AI chip available from a Chinese company. Huawei plans to start mass producing its newest chip, the Ascend 910C, meant to rival U.S. AI chipmaker Nvidia in early 2025, as Reuters reported last month.

Sophgo was co-founded by Micree Zhan, who also co-founded Bitmain, according to a corporate registration database. 

Zhan still indirectly owns 23% of Xiamen Sophgo Technologies Ltd, and five of its subsidiaries via an investment vehicle, Beihaishan Beside Investment Partnership, which he owns in full, according to Wirescreen, a business-intelligence platform and corporate records reviewed by Reuters. 

Sophgo communicated with the U.S. Federal Communications Commission in 2023 using a Bitmain email address.

Bitmain said on social media on Oct. 28 that it “is not involved in or otherwise related to the supply chain investigation.”

Bitmain’s website says it is the world’s leading manufacturer of digital currency mining servers through its brand Antminer, and that it has customers in over 100 countries.

(Reporting by Karen Freifeld and Alexandra Alper; Additional reporting by Fanny Potkin in France and Eduardo Baptista in Beijing; Editing by Chris Sanders, Chizu Nomiyama and Rod Nickel)

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