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TSMC chip output for Nvidia and Huawei hit by defective chemical

Production woes follow conservative forecast from industry bellwether

A production site for Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker.  (Photo courtesy of TSMC)

TAIPEI -- Taiwan Semiconductor Manufacturing Co. said on Monday a defective chemical had damaged production at a factory that supplies customers including chip developers Huawei Technologies, Nvidia and MediaTek.

This marks the second production problem linked to suppliers in less than six months for the world's biggest contract chipmaker, which is suffering from weak demand as smartphone sales slow.

"TSMC has discovered a shipment of chemical material used in the manufacturing process that deviated from the specification and will impact wafer yield," the company said in a statement. It said it was investigating the cause of the problems at the Fab 14B production site in southern Taiwan and contacting customers.

Quality problems involving a photoresist chemical -- crucial in chip manufacturing -- caused the disruption, industry sources told the Nikkei Asian Review. Key suppliers of this chemical include Shin-Etsu Chemical and JSR of Japan as well as American company Dow Chemical, but it remains unclear which provider delivered the problematic materials.

Among the customers that the plant supplies is HiSilicon Technologies, the chipmaking arm of China's Huawei.

The new production troubles comes less than two weeks after TSMC, the chip industry bellwether and sole supplier of iPhone processor chips, gave a conservative outlook for the current quarter due to falling demand for high-end smartphones amid trade war uncertainties.

The Taiwanese chip company foresees revenue dropping 22% from a quarter ago and around 10% from the year-ago period, the largest annual decline for a single quarter since 2009.

TSMC does not expect to lower its financial guidance for this quarter due to the production problems, but said it has yet to complete the evaluation of the financial impact.

Last August, the Taiwanese manufacturer encountered its first computer virus outbreak, when a variation of the WannaCry malware disrupted production for nearly three days -- including at the company's most advanced iPhone chipmaking site -- causing a revenue loss of about 1%, or roughly 2.6 billion New Taiwan dollars ($84.7 million).

TSMC said it failed to detect the virus hidden in a new piece of equipment before linking the tool to the entire production network.

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